Desk Slang · Core
Cheap vs Rich
Cheap and rich are relative-value words: cheap means wide or low versus a model, a history, or a hedge; rich means tight or expensive on that same yardstick — not ‘I like the story.’
Definition
A bond is cheap to the curve if its z-spread is wide versus fitted. An option is rich if implied is high versus a realized or a sibling strike. The opposite of cheap is rich, not ‘expensive in dollars.’
Why it matters
It forces a numeraire. Without one, ‘cheap’ is a vibe.
Case
HY OAS at 300 may be cheap to 2021 and rich to 2009. Both sentences can be true. The hedge and the horizon decide which one you can eat.
How to read it
Always ask cheap to what, over what window, after costs. If the answer is ‘to my target,’ it is a view, not an RV.
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