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Fixed Income Pop Quiz - credit options

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

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

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Pardon me, why not B?

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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.

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SkipE99 Wrote:
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> I will take the physical challenge.


lol

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I will take the physical challenge.

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

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C for sure

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