Mergers, reset clauses, and same-issuer spread divergences are not decorative wrinkles on a delta-neutral trade. Each changes the object being hedged: a deal can cap the convert at a takeover put, a reset can increase conversion shares into a falling market, and two convertibles from one issuer can diverge because one liquidity or feature premium has become excessive. This note selects the high-signal structures from Nick's non-traditional toolkit and frames them as event or relative-value books.
Learning objectives. By the end of this note you should be able to:
- construct a convertible M&A hedge and identify the takeover-put payoff cap;
- explain the feedback mechanism behind a reset or “death spiral” convert;
- size a same-issuer volatility-convergence hedge from relative delta;
- distinguish free/cheap embedded-call monetisation from a generic covered-call trade.
In this lesson
- Convertible merger arbitrage
- Reset converts and the death-spiral feedback
- Same-issuer convergence hedges
- Cheap embedded calls and “free put” language
- Event-book controls
Before you start
The full lesson, with worked examples and exercise solutions, is for members.
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