Credit Spread in Bonds vs Options
Manage episode 515924584 series 3636603
This episode offers a detailed comparison of the term "credit spread" as it is used in two different financial markets: bonds and options trading. In the bond market, the credit spread measures the yield difference between a risky bond (like corporate debt) and a risk-free bond (such as a U.S. Treasury), thus reflecting perceived default risk and acting as a barometer of economic health. Conversely, in options trading, a credit spread is a defined-risk strategy involving selling and buying options to collect premium, which defines a trader's profit and loss range and focuses on managing probability rather than predicting price. The hosts stress that while the applications are different, these two types of credit spreads are connected because wider bond spreads signal greater market fear, which increases implied volatility and leads to higher option premiums, thus creating better opportunities for options credit spread traders. Read full article: https://advancedautotrades.com/credit-spread-in-bonds-vs-options/
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