When — rich implied vol or rich credit packaging — the mirror trade is short the convertible and long the underlying (or a delta-matched equity package). In practice locate, recall, and squeeze risk dominate the model edge. This note states the reverse package cleanly, then catalogues why most desks treat it as opportunistic rather than core book.
Learning objectives. By the end of this note you should be able to:
- define the reverse hedge cash legs and greek signs;
- list frictions that make shorting converts harder than the long-vol classic;
- relate reverse hedges to Ch. 9 nontraditional structures;
- decide when "rich" is a pass, not a short.
In this lesson
- The reverse package
- The reverse trade is short vol with a credit caveat
- Frictions that kill the edge
- A feasibility screen for short-rich bonds
- What closes the trade?
- Related Ch. 9 structures
Before you start
The full lesson, with worked examples and exercise solutions, is for members.
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