The bread-and-butter convert arb trade freezes equity delta so the book earns coupon and short-rebate income while remaining long volatility (vega) and convexity (gamma). Nick Calamos walks a concrete 1{,}000-bond hedge that nets to zero on a 1% stock move — then shows why the next 1% without rebalancing leaks P&L. This note builds that package end-to-end.
Learning objectives. By the end of this note you should be able to:
- size the short stock leg from model percent-delta and conversion ratio;
- reproduce Nick's numerical neutrality check on a 1% move;
- list the opportunity screen and risk checklist for a delta-neutral setup;
- state how leverage and FX overlays change the same single-name trade.
In this lesson
- Trade construction
- Worked example
- Cash flows, funding, and the price of waiting
- Neutrality is a local statement
- Entry discipline
- The opening ticket
Before you start
The full lesson, with worked examples and exercise solutions, is for members.
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