A credit default swap (CDS) in which the buyer doesn’t own, or has a long position in, the underlying corporate or sovereign debt being insured. Naked CDSs allow traders and investors to speculate on debt issues, take large bets on the credit stability of certain institutions or governments, or gamble on the credit quality of certain financial products such as mortgages, bonds or loans.
Naked CDSs account for most of the CDS market worldwide.
