CDS 101 By Goldman Sachs (Education on Credit Default Swaps)

For those who want to learn about credit default swaps, Goldman explains it in this document from October 2009 [CDS 101].  The PDF file was in this press release when responding to a New York Times article.  Goldman, when will I see an exchange traded CDS index fund? We have $VXX to hedge volatility, why not CDS ETFs to hedge the next credit crisis? Aren't there futures on the CBOT CDR LIQUID 50 NAIG Index and HY? Put some options on that ETF as well, derivatives of derivatives of derivatives. UPDATE: The document got removed from Scribd, as well as the press release. See it here: http://www2.goldmansachs.com/media-relations/comments-and-responses/archive/state-of-the-market-cds-101.pdf


State of the Market Cds 101

Comments

  1. "We have $VXX to hedge volatility"

    Uhhhh: http://dailyoptionsreport.com/blog/post/is-vxx-ever-a-buy-redux/

    ETFs are never the answer, just say no.

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  2. What if you bought VXX in early 2008.

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  3. What if you bought SRS in early 2008?

    What if you bought UNG in early 2008?

    These ETFs are made to have naked calls sold against them and to be shorted. Until they aren't. But they certainly aren't made to be held as a hedge.

    My concern is that IRA-based investors will look to ETFs as viable alternatives to futures and will be thusly fleeced.

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  4. Yeah.... It's a play on the VIX futures curve for sustained volatility or curve flattening/backwardation. This must be disclosed! It's just like USO. Front month vol needs to rally for 3 months straight and stick. VXX would've been an amazing short in 12/2008 or basically right when it was introduced on the backwardation peak (http://www.distressedvolatility.com/2008/12/vix-09-puts-active-broke-50-day-moving.html). It's been really shitty as a hedge lately I agree, like DailyOptions said the curve is too wide to realize anything.

    For ETF portfolios run by portfolio managers that don't want to short or buy puts every month, there needs to be a simple way to hedge market volatility. Maybe VXX and of course inverse ETFs aren't the right way, but the investment industry needs to allow simple insurance for portfolios that can't afford to buy puts every month, on top of being balanced of course w/ $TLT or T-bills and what not. And also for the 65+ crowd, there should also be a way to hedge bond portfolios and even Treasuries!

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  5. You know much about Trusts? I think this could be the solution for IRA investors.

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  6. Yeah, priced at NAV, trade like mutual funds, hedge like futures, cheap fees, IRA accessible, this is where the opportunitity to democratize investment may well be. The trick is marketing the UITs.

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  7. WOW.... Instead of Disqusing this, we should've formed a VXX trust !!! Up 52%!!!

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  8. Yeah dude, and FAZ is up 40% in the past week! Wait, if you priced FAZ before it's 10:1 split, it's price is $1.48. Sooooo, I guess one week of black swan freak-out doesn't make up for poor ETF structure.

    I looked at VIX options for the first time today, you could do Butterfly's on the VIX and sell volatility of volatility, you could... wait a minute, why are OTM Puts trading almost twice as high as ITM Calls with the same strike and expiration? Maybe VIX options are fucking wacky. VIX futures trade at a premium to "spot" such that mean reversion trades are impossible. Perhaps the VIX is only useful as an indicator for contrarian Put buying and adjusting delta-neutral positions like SPY Condors.

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  9. Do you watch optionmonster's volatility sonar report on youtube? It is interesting.

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  10. No but I'll make a note of it.

    This may be of posterity value to you: http://www.zerohedge.com/article/panic-and-loathing-sp-500-pits

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