Conversion Arbitrage

Conversion arbitrage is an investment strategy that essentially involves three specific actions that take place at the same time.

Conversion arbitrage - A transaction where the asset is purchased and buys a put option and sells a call option on the asset purchased, each option having the same exercise price and expiry.

Conversion Arbitrage - a riskless transaction in which the arbitrageur buys the underlying security, buys a put, and sells a call. The options have the same terms.
Converted Put - see Synthetic Put.

Conversion Arbitrage
Traders buy and sell two different securities (or synthetic securities), forcing equivalent prices for equivalent securities.

Conversion Account The process by which an asset or liability denominated in one currency is exchanged for an asset or liability denominated in another currency. Conversion arbitrage A transaction where the asset is purchased and buys a put option ...

A strategy in which a long put and a short call with the same strike price and expiration are combined with long stock to lock in a nearly risk less profit. The process of executing these three-sided trades is sometimes called conversion arbitrage.

For example, buying 100 shares of XYZ stock, writing 1 XYZ May 60 call, and buying 1 XYZ May 60 put at desirable prices. The process of executing these three-sided trades is sometimes called 'conversion arbitrage.

conversion arbitrage A risk-free transaction in which an investor purchases a put and writes a call... conversion option A feature on some bonds and preferred stock issues allowing the holder to convert the shares into common stock.

See also: Conversion, Risk, Position, Transaction, Option