I think this is a mistake on CFA book but I need to confirm. On the first paragraph under “Capital Structure Trades”, the book mentioned to sell CDS on Ford Motor Credit and Buy CDS of the holding company. I believe this is incorrect as they mentioned that Ford Motor Company was going to deteriate but its subsidary was in better shape. Therefore, we should buy cds on Ford Motor company and sell CDS on its subsidary. Does anybody agree with me? Or am i going nutso?
Summary: * Ford Motor Company is going to deteriorate --> BEARISH * Ford Moter Credit is ok --> BULLISH * When you’re bearish you want to own a CDS, and when you’re bullish you sell. Sell a CDS on Ford Motor Credit, buy a CDS on Ford Motor Company.