By definition, it is a cash-settled call option whose underlying is a basket of reference entities (known also as basket components). This option, introduced by CBOE in 2007, automatically pays out a fixed cash settlement amount upon the confirmation of a credit event in one, some or all of the basket components, as specified by the exchange at listing. The cash settlement amount could be different for different basket components. The credit default basket can be reconstituted periodically and new option series based on the reconstituted credit default basket can be listed as new option classes. This option is equivalent to a credit default swap (CDS) that is subject to a regulated and centralized marketplace. It expires worthless if no credit event is confirmed before expiration. The credit event is typically a bankruptcy, failure to pay, or debt restructuring.

It is also known as a credit default basket option.