Overview

the preceding material supplied a theoretical price and a Greek map. This topic turns that analytical output into an executable unit trade: buy a cheap convertible, short the correct number of shares, fund and rebalance the package, and distinguish a successful volatility trade from a concealed credit or directional position. Nick Calamos calls the delta-neutral package the bread-and-butter convertible-arbitrage hedge; the Handbook explains why a stock hedge is necessary but never sufficient.

By the end of this note you should be able to:

• build and cash-flow a delta-neutral long-convert / short-stock position;
• separate model delta, estimated delta, and an intentional directional tilt;
• choose a rehedging rule that gives gamma capture a chance to exceed friction;
• attribute a daily mark across carry, residual delta, gamma, vega, credit, FX, and model effects;
• decide when unit-trade leverage, currency forwards, or a reverse hedge are appropriate.

1. Contents
2. The big picture