Suppose an investor wishes to sell protection on $10 million of the CDX Index where the fixed spread is 100 bps. If the current spread on the index is 150 bps, then the investor will receive

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The investor is selling protection at a fixed spread of 100 bps while the current spread is 150 bps. The difference of 50 bps represents the additional spread the investor is effectively receiving over the life of the contract. This difference is typically paid as an upfront premium (the risky present value of the 50 bps difference). Additionally, the investor receives a running quarterly premium based on the fixed spread of 100 bps on $10 million, which is $25,000 per quarter ($10,000,000 * 0.01 / 4).

Suppose an Investor Wishes to Sell Protection on $10 Million