Delta neutrality makes a convertible package easier to finance than an outright long bond, but it does not make leverage harmless. Funding charges magnify every residual Greek and FX can make a correctly stock-hedged foreign issue look like a mysterious valuation error. This note treats leverage and currency forwards as controls on one position; Portfolio Risk Categories for Convert Arb then decides whether their interactions are safe at portfolio scale.
Learning objectives. By the end of this note you should be able to:
- calculate Calamos’s levered carry return for a single hedge;
- explain why margin and Greek controls tighten as leverage rises;
- classify the currency exposure of common bond/stock currency combinations;
- size a forward overlay from residual rather than gross foreign-currency exposure.
In this lesson
- Leverage changes the denominator and the failure mode
- Controls before leverage is added
- FX is a residual exposure, not a gross notional
- Overlay workflow
- Unit-trade stress card
Before you start
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