It works both ways. This is essentially what happened in The Big Short, although for profit, rather than hedging. You can purchase naked credit default swap opt

It works both ways. This is essentially what happened in The Big Short, although for profit, rather than hedging. You can purchase naked credit default swap options, whereby the issuer with insure debt which you don't own against default. This comes with some obvious criticism, much like taking out insurance for someone else's house.