PPT Slide
if spread > strike spread at maturity
• to hedge against rising credit spreads;
• to target the future purchase of assets at favorable prices.
An investor wishing to buy a bond at a price below market can sell
a credit spread option to target the purchase of that bond if the credit
spread increases (earn the premium if spread narrows).
at trade date, option premium
Payout = notional ? (final spread – strike spread)+