binary credit CALL options???

CFA Level III
#1

apparently this exists, according to schweser exam num 1, in volume 1, afternoon session… i thought we only have puts (ie, right to sell at a fixed price when a negative credit event occurs) do you have binary credit CALL options that, for example, give you the right to buy the bond when a positive credit event (for example, an upgrade) occurs??? thx

#2

yes

#3

sure, binary call option will work for a bond upgrade (a positive credit event), same way as binary put option works on for a bond downgrade (a negative credit event)

#4

and dont forget that what defines ‘credit event’ is very much a custom list

#5

I have a question though .

In a schweser qbank question they state that the value of the binary option cannot increase

So is the “value” in the formula OV= max [(strike-value),0]

the value as seen when the credit event occurs ?