The hedge ratio is the first order ticket field in a convertible-arbitrage trade, so an approximate delta can turn a supposedly market-neutral position into a concealed stock bet. This note separates parity and historical estimates from the pricing engine’s theoretical delta, then puts Calamos’s warning into an entry screen: model output starts the decision; it does not overrule borrow, carry, liquidity, credit, or a known event.
Learning objectives. By the end of this note you should be able to:
- state the units of a convertible delta and convert it into a share hedge;
- explain why parity and historical delta estimates can be misleading;
- distinguish a neutral model hedge from an intentional over- or under-hedge;
- run a pre-trade opportunity screen and identify a justified no-trade decision.
In this lesson
- Three meanings of delta
- From percentage delta to shares
- Why the obvious estimates fail
- The opportunity screen
- Pre-trade reconciliation
Before you start
The full lesson, with worked examples and exercise solutions, is for members.
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