A European option that grants the holder the right, without the obligation, to buy or sell credit protection on a specific reference entity for a specific spread up to a certain future date. If the reference entity defaults during the future period (i.e., option’s life), the option is knocked out. Like normal options, the CDS options are classified as call CDSs and put CDSs.
This option is also referred to as a credit swaption or a credit default swaption.
