When the floor fails or the whole capital structure is dislocated, the trade is no longer balanced-zone gamma. Nick covers capital-structure hedges, distressed/negative-gamma opportunities, and merger-related convert trades — packages that should be booked and risk-managed as credit / event books, not as failed vol arb.
Learning objectives. By the end of this note you should be able to:
- define a capital-structure hedge involving converts;
- explain why distressed converts can be negative-gamma;
- list takeover risks that break ordinary hedges;
- connect to The Delta-Neutral Convertible Hedge regime map and Convertible Asset Swaps, Ascots and CDS Overlays CDS tools.
In this lesson
- Capital-structure hedges
- Distressed / negative gamma
- Merger / takeover converts
- Relative value across the issuer's claims
- Negative gamma is a credit/equity feedback
- Two distinct distressed theses
Before you start
The full lesson, with worked examples and exercise solutions, is for members.
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