Listed (or OTC) equity options let a convert book change its vega/gamma profile without resizing the bond or fighting a toxic stock borrow. Nick groups call writes, protective puts, and synthetic bond overlays with the nontraditional hedge toolkit: buy puts to truncate downside, sell calls to finance carry, or replace a reverse bond short with a short-vol options package.
Learning objectives. By the end of this note you should be able to:
- state common overlay patterns (protective puts, call overwrites, collars, synthetic bond);
- compare overlays to changing the stock hedge ratio;
- name frictions (listing quality, skew, early exercise, pin risk);
- choose overlay vs stock rehedge vs reverse bond short.
In this lesson
- Overlay patterns
- When overlays beat stock rehedges
- Covered and partially covered call writes
- Protective puts are credit-gap insurance, not CDS
- Choosing an overlay rather than resizing stock
- Worked overlay decision
Before you start
The full lesson, with worked examples and exercise solutions, is for members.
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