Hardy Noman
New Member
Hello David / Shakti,
in the readings (Malz Chapter 11) there is an example of a CDS strategy;
--> Sell Protection on equity tranche + buy protection on mezzanine tranche
i.e Long credit and credit spread risk of the equity tranche + short credit and credit spread risk on the mezzanine tranche
they say the motivation of the trade was to have a positive convex payoff profile with 2 positions benefitting from credit spread volatility, while earning a positive net spread on the positions.
HOW would this be possible....i mean how would this create a position similar to option straddle on credit spreads (with an option premium paid to the owner of the option)
Can you please explain the process/ strategy....this seems quite miraculous..! haha.
Thank you.
Hardy.
in the readings (Malz Chapter 11) there is an example of a CDS strategy;
--> Sell Protection on equity tranche + buy protection on mezzanine tranche
i.e Long credit and credit spread risk of the equity tranche + short credit and credit spread risk on the mezzanine tranche
they say the motivation of the trade was to have a positive convex payoff profile with 2 positions benefitting from credit spread volatility, while earning a positive net spread on the positions.
HOW would this be possible....i mean how would this create a position similar to option straddle on credit spreads (with an option premium paid to the owner of the option)
Can you please explain the process/ strategy....this seems quite miraculous..! haha.
Thank you.
Hardy.