Credit Spread Option

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Dictionary Says

Definition of 'Credit Spread Option'

A financial derivative contract that transfers credit risk from one party to another. An initial premium is paid by the buyer in exchange for potential cash flows if a given credit spread changes from its current level.  

The buyer of a credit spread option will receive cash flows if the credit spread between two specific benchmarks widens or narrows. Credit spread options come in the form of both calls and puts, allowing both long and short credit positions.  
Investopedia Says

Investopedia explains 'Credit Spread Option'

Credit spread options can be issued by holders of a specific company's debt to hedge against the risk of a negative credit event. The buyer of the credit spread option (call) assumes all or a portion of the risk of default, and will pay the option seller if the spread between the company's debt and a benchmark level (such as LIBOR) grows.  

Options and other derivatives based on credit spreads are vital tools for managing the risks associated with lower-rated bonds and debt.  
Search results for

'Credit Spread Option'

  • Option Spreads: Credit Spreads Structure | Investopedia

    http://www.investopedia.com/university/optionspreadstrategies/optionspreads4.asp
    ... of the potential profitability of a credit spread - is fundamentally ... mirror image
    seen in the spread design (ie ... instead of selling the FOTM IBM call option). ...

  • Option Spreads: Diagonal Spreads | Investopedia

    http://www.investopedia.com/university/optionspreadstrategies/optionspreads6.asp
    ... The advantages of using a diagonal spread for credit spread can be found
    in the potential gains on the long back-month option. In ...

  • Vertical Bull and Bear Credit Spreads

    http://www.investopedia.com/articles/optioninvestor/02/041202.asp
    ... becomes a credit spread and is generally a net credit representing only time value.
    A debit spread, on the other hand, always has the short option in the ...

  • Taking Advantage Of Volatility Spikes With Credit Spreads

    http://www.investopedia.com/articles/optioninvestor/10/volatility-spikes-credit-spreads.asp
    ... Taking the second point first, a put credit spread – also commonly known as a "bull
    put spread" - simply involves selling (or "writing") a put option with a ...

  • Option Spreads: Tips And Things To Consider | Investopedia

    http://www.investopedia.com/university/optionspreadstrategies/optionspreads7.asp
    ... SPAN margin offers the advantage of having the nearby short option in a diagonal
    call or put credit spread looked at as a covered option. ...

  • How To Manage Bull Put Option Spreads

    http://www.investopedia.com/articles/optioninvestor/05/051005.asp
    ... (For related reading, check out Vertical Bull And Bear Credit Spreads.) TUTORIAL:
    Option Spread Strategies When the market moves down quickly, it is the best ...

  • Option Spreads: Vertical Spreads | Investopedia

    http://www.investopedia.com/university/optionspreadstrategies/optionspreads2.asp
    ... in price than the FOTM short call option's price ... Nevertheless, a spread trade does
    offer greater control of ... And with credit spreads (which will be discussed next ...

  • Options Trading With The Iron Condor

    http://www.investopedia.com/articles/optioninvestor/06/ironcondor.asp
    ... Advertisement - Article continues below. See: Option Spreads Strategies
    A credit spread is essentially an option-selling strategy. ...

  • Option Spreads: Introduction | Investopedia

    http://www.investopedia.com/university/optionspreadstrategies/
    ... It is in this category that we find the "complex" trade known as an option spread. ...
    Next: Option Spreads: Selling And Buying To Form A Spread ». ...

  • Bear Put Spreads: A Roaring Alternative To Short Selling

    http://www.investopedia.com/articles/optioninvestor/09/bear-vertical-put-spread.asp
    ... herself an advantage by trading a bear put spread, rather than simply buying a naked
    put option. (For related reading, see Vertical Bull and Bear Credit Spreads ...

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