Positioning for CDS debacle
If a CDS (credit default swap) devaluation debacle is inevitable, how can the individual investor position her/himself so as to profit (handsomely if possible)? I was thinking about several levels of out-of the money put options on JPM to enhance leverage because JPM seems to have about 7 trillion of CDS. Any thoughts on the "if" part of my question, general positioning or specific ideas would be welcome. Thanks.
Answers
825 points
Dragonsbane answered one year ago …
Well, I'll let other people tell you about more conservative strategies. But, if you were confident in this trade, you could buy 10 Jan 20.00 (WJP MD-E) puts oon JP Morgan. This is basically the furthest date out you can get (so you have the most time for your thesis to play out) with the lowest strike, so there is a LOT of leverage involved. Please note this would be considered VERY SPECULATIVE and a small move up in JP Morgan could wipe out more than half the capital you put into this trade. As a side note, I have similar puts on BAC, WB and STI.
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