Vanilla CB ArbGamma scalping CB
Daily delta rebalance captures realized vol via gamma
Source: medium.com
Vanilla CB ArbCheap embedded vol bet
Buy CB when implied vol < forecast realized
Source: wikipedia.org
Vanilla CB ArbExpensive embedded vol short
Short CB when implied vol >> forecast realized (rare)
Source: mergersandinquisitions.com
VolatilityImplied vol low CB long
Buy CB with implied vol below forecast for vol harvesting
Source: resonanzcapital.com
VolatilityVol expansion regime
CB-arb performs well during vol expansion regimes
Source: resonanzcapital.com
VolatilityVol crush risk
CB-arb hurts when implied vol crushed below realized
Source: resonanzcapital.com
BorrowBorrow availability check
Verify borrow availability for short stock leg
Source: medium.com
BorrowBorrow recall risk
Sudden borrow recall destroys hedge; risk management
Source: medium.com
BorrowHard-to-borrow premium
HTB premium reduces strategy alpha
Source: medium.com
BorrowPre-secured borrow lines
Lock in borrow before establishing CB long
Source: medium.com
PricingTwo-factor model (vol+credit)
Equity vol + credit spread two-factor pricing
Source: medium.com
PricingBinomial lattice for callability
Binomial tree handles call/put schedules
Source: medium.com
PricingLSM (Least Squares Monte Carlo)
Longstaff-Schwartz for path-dependent CBs
Source: medium.com
PricingCredit-equity correlation model
Model jump-to-default correlation with equity
Source: medium.com
PricingImplied vol surface fit
Calibrate vol surface across maturities/strikes
Source: medium.com
Risk MgmtGap risk management
Overnight gaps blow through deltas; size accordingly
Source: medium.com
Risk MgmtFunding cost management
Repo/financing cost critical to net P&L
Source: resonanzcapital.com
Risk MgmtFinancing headroom (2008 lesson)
Maintain financing headroom to avoid forced unwind
Source: resonanzcapital.com
Risk MgmtGross leverage discipline
Moderate gross leverage; survive shocks
Source: resonanzcapital.com
Risk MgmtSector concentration cap
Diversify across sectors; tech-heavy CB issuance bias
Source: resonanzcapital.com
Risk MgmtIssue maturity ladder
Spread positions across maturities
Source: resonanzcapital.com
SpecializedDeath spiral floorless converts
Floorless CBs (death spiral) can crush stock price
Source: wikipedia.org
IssuanceNew-issue CB premium fade
Trade new-issue premium decay over first weeks
Source: thehedgefundjournal.com
IssuanceConvertible roadshow timing
Time entries based on roadshow demand metrics
Source: thehedgefundjournal.com
IssuanceReg D 144A market
Trade 144A converts (qualified institutional only)
Source: thehedgefundjournal.com
IssuancePricing supplement reading
Detailed read of indenture for hidden features
Source: medium.com
Performance2003-2007 CB-arb peak era
Pre-GFC golden era; many specialists
Source: wikipedia.org
Performance2008 CB-arb crash
Margin calls during GFC forced unwind
Source: wikipedia.org
Performance2009-2010 recovery rally
Post-GFC mean reversion drove huge returns
Source: wikipedia.org
Performance2023-2025 comeback
Strategy revival driven by deal flow + macro
Source: resonanzcapital.com
PerformanceCapacity-constrained alpha
Smaller funds tend to outperform; capacity decay
Source: resonanzcapital.com
ApplicationHedge fund convert arb implementation
Multi-strategy hedge fund convert book
Source: thehedgefundjournal.com
ApplicationLong-only convert ETF
CWB ETF for long-only convertible exposure
Source: wikipedia.org
Autocall barrier monitoring
AutocallableMethodology
Monitor barrier touches across observation dates
Source: arxiv.org
Autocall basket structure
AutocallableIncome
Basket-linked autocall on multiple stocks
Source: arxiv.org
Autocall delta-vega hedge
AutocallableMethodology
Bank trader's hedging book for autocallables
Source: arxiv.org
Autocall structured note
AutocallableIncome
Auto-redeems if barrier hit; complex payoff
Source: arxiv.org
Bank AT1 (CoCo) bonds
SpecializedBoth
Additional Tier 1 contingent convertibles for banks
Source: oreilly.com
Bond floor protection
Busted ConvertibleLong
Bond value floor below conversion value
Source: aima.org
Capital structure arb
Busted ConvertibleBoth
Trade CB vs equity vs senior debt mispricings
Source: aima.org
CoCo trigger event positioning
SpecializedBias
Position around CoCo trigger event risk (CET1 ratio)
Source: oreilly.com
Convertible exchange offer
Issuer NegotiationBoth
Trade issuer-led CB exchange offers; capture fees
Source: thehedgefundjournal.com
Convertible preferred arbitrage
SpecializedBoth
Convertible preferred vs common stock arbitrage
Source: oreilly.com
Convertible preferreds tilt
Mandatory ConvLong income
Convertible preferreds with higher coupons
Source: oreilly.com
Credit-trader stage 1-2
Busted ConvertibleLong
Focus on credit recovery rather than equity option
Source: aima.org
DECS PRIDES PERCS arb
Mandatory ConvBoth
Trade specialty mandatories vs underlying equity
Source: oreilly.com
Delta-neutral hedge ratio
Vanilla CB ArbMethodology
Set hedge ratio = bond delta x conversion ratio
Source: mergersandinquisitions.com
Distressed CB long
Busted ConvertibleLong
Buy busted CB at deep discount; option deep OTM
Source: aima.org
Dynamic delta rebalancing
Vanilla CB ArbMethodology
Adjust hedge as stock moves; capture gamma
Source: mergersandinquisitions.com
ELN buffered
Equity-Linked NotesIncome
Partial principal protection (buffer)
Source: encyclopedia
ELN cap on upside
Equity-Linked NotesIncome
Capped upside in exchange for principal protection
Source: encyclopedia
ELN dual-direction
Equity-Linked NotesIncome
Pays positive return whether underlying up or down (within range)
Source: encyclopedia
ELN leveraged participation
Equity-Linked NotesBoth
2x or 3x participation rate to upside
Source: encyclopedia
ELN principal-protected
Equity-Linked NotesIncome
Principal protected + equity upside via embedded option
Source: encyclopedia
Hybrid contingent CB
SpecializedBoth
Contingent convertibles (CoCos) for banks
Source: oreilly.com
Issuer call premium
Issuer NegotiationIncome
Trade callable CBs near hard call dates
Source: thehedgefundjournal.com
Knock-in put short via reverse conv
Reverse ConvertibleShort vol
Implicit short knock-in put inside reverse conv
Source: arxiv.org
Long convert short stock delta-hedged
Vanilla CB ArbBoth
Long CB short delta of underlying stock; harvest cheap embedded vol
Source: wikipedia.org
Make-whole takeover protection
Issuer NegotiationLong
CBs with takeover protection trade up on rumor
Source: thehedgefundjournal.com
Mandatory cap structure
SpecializedMethodology
Trade mandatory CBs across cap structure
Source: oreilly.com
Mandatory exchange settlement
Mandatory ConvBoth
Trade mandatory convertibles required to convert
Source: oreilly.com
Net share settlement feature
Issuer NegotiationMethodology
Newer CBs with net share settle (cash + shares)
Source: thehedgefundjournal.com
PPN Treasury + call
Principal ProtectedLong
Buy zero-coupon Treasury + ATM call to replicate
Source: encyclopedia
PPN basket-linked
Principal ProtectedLong
Linked to equity index/commodities/multi-asset basket
Source: encyclopedia
PPN with cap
Principal ProtectedLong
Trade PPN with capped upside vs DIY replication
Source: encyclopedia
Phoenix autocall
AutocallableIncome
Pays coupon if above coupon barrier; redeems at autocall
Source: arxiv.org
Recovery rate analysis
Busted ConvertibleMethodology
Estimate recovery in default scenario for pricing
Source: aima.org
Reverse conv structured note
Reverse ConvertibleIncome
High coupon paid; principal at risk to underlying
Source: arxiv.org
Soft call provisional
Issuer NegotiationMethodology
Soft call when stock above 130% strike for 20-day period
Source: thehedgefundjournal.com
Theta vs gamma tradeoff
Vanilla CB ArbBoth
Long gamma costs theta; manage net daily P&L
Source: medium.com
Worst-of autocall
AutocallableIncome
Payoff linked to worst performer; higher yield
Source: arxiv.org
Yield enhancement reverse conv
Reverse ConvertibleIncome
Yield enhancement via volatility selling
Source: arxiv.org
An encyclopedia of publicly documented strategies for education. YCAI does not recommend, endorse, or trade any of these. Not investment advice.