Fixed Income Pop Quiz - credit options company, credit, option, trade

LPoulin133

PM of ABC company is worried that Company D will be downgraded and Company E will trade off due to poor financials (spread will get worse). What credit options are apppropriate:

a. buy a binary call option on Company D and a credit spread put option on company E
b. buy a binary put option on Company D and a credit spread put option on company E
c. buy a binary put option on Company D and a credit spread call option on company E

lcw77

C for sure

liangfeng

SkipE99 Wrote:
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> I will take the physical challenge.


lol

Zestt

I will take the physical challenge.

pennyless

real tough question. We finally get a question posted but its a doosey

ohai

Pardon me, why not B?

bboo

Oal29 Wrote:
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> Pardon me, why not B?

Correct answer is "c".

A credit spread put option for E will be useful if you believe that the spreads will decline and not widen.

liangfeng

A credit spread call option has the spread as underlying. As the spread increases, so does the call value,