if spreads widen, does buying a credit spread call hedge the portfolio? it certainly does in real life by buying cds on countries and companies! i have seen binary puts in the schweser material but that was related to maintaining an IG portfolio. buying a binary ratings put does not protect for spread widening without a downgrade , or am i missing something?
Binary put only payoff if an event happens, which could be a downgrade or a default or something else. a credit spread call pays off the difference between the spread and the strike spread if the bond widens. So it is a hedge against spreads widening. Or thats what i learnt anyway.
+1 spread widen, while not triggering downgrade = spread option beat cds/cdo. chedges Wrote: ------------------------------------------------------- > Binary put only payoff if an event happens, which > could be a downgrade or a default or something > else. > > a credit spread call pays off the difference > between the spread and the strike spread if the > bond widens. So it is a hedge against spreads > widening. > > Or thats what i learnt anyway.