PPT Slide
The investor intends to purchase the bond below current market price
(300 bps above US Treasury) in the next year and has targeted a
forward purchase price corresponding to a spread of 350 bps. She
sells for 20 bps a one-year credit spread put struck at 330 bps to a
counterparty (currently holding the bond and would like to protect
the market price against spread above 330 bps).
• spread < 330; investor earns the premium
• spread > 330; investor acquires the bond at 350 bps