Products
  • Credit Event Binary Options
    (CEBOs) From CBOE
  • Introducing a pure
    play on

CEBOs in Brief:


  • CEBOs are modified, European-style cash settled binary call options. A credit event is predicated on the ability of a reference entity, e.g., Advanced Micro Devices (AMD), to meet their financial obligations to repay their corporate debt.
  • The option's premium reflects the probability that a bankruptcy/credit event will occur prior to the contracts scheduled expiration. A premium of 0.11 indicates approximately an 11% chance that a bankruptcy will occur to the reference entity sometime during the option's life.
  • CEBO's have a pre-determined fixed Recovery Rate (the company's residual value after Bankruptcy) of zero for Single- Names and 0.40 for Baskets. The guesswork regarding bankruptcy valuation is eliminated and payment will be expedited and timely.
  • If a specified credit event, e.g., BANKRUPTCY is declared the contract settles at $1, its maximum level. The recovery rate is zero, therefore the full payout is awarded ($1 - recovery rate (0)) which translates into a $1000 settlement amount, due to the 1000x multiplier ($1 x 1000). If the entity remains SOLVENT at expiration the contract expires worthless ($0).
  • CEBOs will be quoted in penny $.01 increments and trade between $0.00 and $1.00, i.e., 0.11, 0.12, 0.13...with a minimum tick value of $10 (.01 x 1000).
  • CEBOs can be conveniently traded out of a securities account, therefore making it an attractive method for equity traders to trade credit.




Options involve risk and are not suitable for all investors. Prior to buying or selling an option, a person must receive a copy of Characteristics and Risks of Standardized Options (ODD). Copies of the ODD are available from your broker, by calling 1-888-OPTIONS, or from The Options Clearing Corporation, One North Wacker Drive, Suite 500, Chicago, Illinois 60606. The information on this website is provided solely for general education and information purposes and therefore should not be considered complete, precise, or current. Many of the matters discussed are subject to detailed rules, regulations, and statutory provisions which should be referred to for additional detail and are subject to changes that may not be reflected in the website information. No statement within the website should be construed as a recommendation to buy or sell a security or to provide investment advice. The inclusion of non-CBOE advertisements on the website should not be construed as an endorsement or an indication of the value of any product, service, or website. The Terms and Conditions govern use of this website and use of this website will be deemed acceptance of those Terms and Conditions.