) -- The

Chicago Board Options Exchange

(CBOE) - Get Cboe Global Markets Inc Report

is giving traders a new way to hedge against the next great financial crisis.

Banks such as


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Bank of America

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JPMorgan Chase

TheStreet Recommends

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Goldman Sachs

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Morgan Stanley

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, are being added to the CBOE's Credit Event Binary Options contracts, which pay out in the event a company goes belly up.

Contracts on the five financial firms began trading for the first time Tuesday.

The options contract allow investors "to express an opinion on whether a company will experience a "credit event,'" according to a CBOE statement. If a bankruptcy occurs on a reference company prior to expiration, the payout is $1,000 per contract.


There has been demand from market participants for a mechanism to protect against potential downside risk in the event of default by broker dealers," according to the CBOE statement.

The CBOE argues that the binary options offer "price transparency" when compared with credit default swaps -- a popular method for large institutional investors and hedge funds to protect against the default -- since they will be traded over an exchange and not in the private market.

Additionally, the CBOE argues that the "binary" nature of the contracts will act as a signifcant selling point for traders. "A contract has just two possible outcomes -- a payout of a fixed amount if a credit event occurs or nothing if a credit event does not occur," the statement said.

Certainty is an important aspect of credit trading. Much of the credit default swap market remained in limbo for several weeks following the 2008 collapse of Lehman Brothers as derivatives traders negotiated and "netted out" their positions.