Derivatives Strategies
Convertible Arbitrage
Definition
What is Convertible Arbitrage?
A strategy combining a convertible securityA tradable financial claim or ownership interest, such as a share, bond, or fund unit. with an offsetting short positionExposure that benefits when an asset's price falls. in the issuer's shares.
Example in practice
How This Looks in Practice
The trader seeks to profit from mispricing between the bond and equity option.
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Related Terms
Derivatives Strategies
Covered Call
A strategy that owns the underlying asset and sells call options against it.
Derivatives StrategiesProtective Put
A strategy that owns an asset and buys a put to limit downside.
Derivatives StrategiesCollar
A strategy combining a protective put with a written call, often to reduce hedging cost.
Option GreeksDelta
The estimated change in an option's price for a small change in the underlying price.