Convertible Arbitrage
Convertible arbitrage is a trading strategy where investors buy convertible securities (like bonds or preferred stock) and short the underlying stock. The goal is to profit from price inefficiencies between the convertible security and the underlying stock. The convertible security offers potential upside with downside protection, while the short position in the stock hedges risk. The strategy is market-neutral, as the long and short positions balance out market exposure. Profits come from discrepancies in pricing, making it a popular strategy among hedge funds and institutional investors. It's complex but seeks to capitalize on mispricings.
Related Terms
Limit Order
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Indices
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Stock Broker
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Adjusted Closing Price
The adjusted closing price of a stock reflects modifications made to account for corporate actions—such...
Assets And Liabilities
An asset is something that holds monetary value and has the potential to generate profits...
Arbitrage
Arbitrage is a trading strategy that exploits small price differences for a security across markets...
