Don Fishback

Insuring U.S. Government Debt: A Terrific Paradox

Felix noted this in his article, and User 339138 states it in point (3). As donselion noted, this is really similar to an option. But it's an option that I don't think anyone can reasonably expect to exercise. It's not like a call option on a stock where you can exercise it and get the shares. In this event, the option can only be exercised if the U.S. defaults on its debt, which, because of the intertwined nature of our global financial system, would have catastrophic consequences everywhere. So, I think people are just trading this, hoping and praying that someone else comes along to buy the CDS contract at a higher price later.