Great article. What I find most interesting was his choice of vehicle to express this trade. I’ve often wondered, and admit, I’ve not done any homework on this, but what were the best ways to express this view. I had a calendar straddle (3m put, 1m call) which did well but not that well. But was psychologically easy to manage and allowed for my timing to have been early. The element I find most intriguing was the conviction on the timing. Anyway. Thanks for the work on this.
The most common trigger for closing a CDS contract is a credit event. A credit event occurs when the referenced issuer (the entity whose credit risk is being insured against) experiences a predefined credit event such as default on its debt obligations, bankruptcy, or restructuring.
When a credit event occurs, the protection buyer (the party that purchased the CDS) can demand payment from the protection seller (the party that sold the CDS) based on the terms of the contract.
2. Maturity:
CDS contracts typically have a fixed maturity date, after which the contract expires. When the contract reaches its maturity date, it is considered closed.
3. Exercise of Early Termination:
Parties to a CDS contract may agree to close out the contract before its maturity date through an early termination process. This can be initiated by mutual consent or may be triggered by specific events outlined in the contract.
4. Assignment/Selling:
CDS contracts can be assigned, sold or transferred to other parties. When a CDS is assigned/sold, it may be considered closed between the original parties, and a new contract may be established between the new counterparties.
Great share!
my pleasure!
Great article. What I find most interesting was his choice of vehicle to express this trade. I’ve often wondered, and admit, I’ve not done any homework on this, but what were the best ways to express this view. I had a calendar straddle (3m put, 1m call) which did well but not that well. But was psychologically easy to manage and allowed for my timing to have been early. The element I find most intriguing was the conviction on the timing. Anyway. Thanks for the work on this.
Just one question. How is it determined when the CDS contract will get closed. When the spread widens ?
1. Credit Event:
The most common trigger for closing a CDS contract is a credit event. A credit event occurs when the referenced issuer (the entity whose credit risk is being insured against) experiences a predefined credit event such as default on its debt obligations, bankruptcy, or restructuring.
When a credit event occurs, the protection buyer (the party that purchased the CDS) can demand payment from the protection seller (the party that sold the CDS) based on the terms of the contract.
2. Maturity:
CDS contracts typically have a fixed maturity date, after which the contract expires. When the contract reaches its maturity date, it is considered closed.
3. Exercise of Early Termination:
Parties to a CDS contract may agree to close out the contract before its maturity date through an early termination process. This can be initiated by mutual consent or may be triggered by specific events outlined in the contract.
4. Assignment/Selling:
CDS contracts can be assigned, sold or transferred to other parties. When a CDS is assigned/sold, it may be considered closed between the original parties, and a new contract may be established between the new counterparties.