ABX Index to price subprime risk
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continuing from the comment below, if the ABX falls, people who are LONG ABX are long the credit-protection on it, which means this should be positive for ABX "buyers". People who are SHORT ABX are essentially writing the credit-protection, so it should be negative for those short the ABX if the ABX falls, due to the involvement of CDS in the contract.
It's sort of an inverse relationship, no? Is my understanding flawed? Please help!
teknashend 4 months ago
I know that ABX is a proxy for the 20 or so largest subprime securitized MBS deals, and betting on the ABX is essentially a bet on subprime borrowers paying their mortgages on time.
But instead of it being a normal index like the SPX or DJIA, exposure to ABX is thru the CDS written on the ABX, therefore going long ABX is BUYING credit-protection on the ABX.
If this is true, then how come when ABX indices fall in value, thats negative for long positions?
teknashend 4 months ago
Excellent job.
mx999us 2 years ago