About the Site

This site contains analysis and trade ideas from the experience that I have accumulated over the past 12 years as an investment analyst for four different convertible arbitrage hedge funds. While convertible arbitrage is the main focus on this site, there are entries for distressed credit, event driven and other special situations as well.

The links on the right are sorted by Reference Materials, which explains the basics of convertible bonds, convertible arbitrage and indenture analysis, Credit Analysis, which includes credit and indenture analysis, Convertible Topics, which are posts that talk about trade ideas, Fixed Income Topics, which are posts on fixed income securities including high yield and distressed securities, and Special Situations, which covers other arbitrage topics.

Convertible Arbitrage

Traditionally, convertible arbitrage is the investment strategy that involves owning the convertible bond while shorting the underlying stock. Because the convertible bond exhibits positive gamma characteristics, the convert will move up more than the stock to the upside but move down less to the downside on a delta neutral hedge. This allows the position to be profitable if the stock has larger moves than implied by the warrant embedded in the convertible bond.

The key to convertible arbitrage is to isolate the cheapness (or richness) in the security. The four main components of a convertible bond are stock price, credit spread, interest rates, and volatility. If you can hedge out three of the four variables, you can determine whether the final variable is cheap (or rich). In some cases of convert market distress, you and hedge out all four and make a riskless return.

Industry Analysis

Please visit our sister site that covers industry analysis called investmentpedia.net

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