thommo77

Just came across this question - quite tricky bit (schweser only got eg on long position and didnt say so). So in summary:


Long position - investor expects credit to worsen and spread widen, so payoff will be Spread at maturity LESS Strike spread x Notional Amount x Risk factor.

Short position - investor expects credit to improve and spread narrow, so payoff will be Strike spread Less Spread at maturity x Notional Amount x Risk factor.

(Note no max bec the payoff is symmetrical)