Franco, If I said it was risk free 12%, then I misspoke. There is no such thing. It is most likely much better than 12%. See my example in my note to Richard below.
Your numbers make me think you are using a straight conversion, not a spread conversion. Straight conversions, both at the same strike price and exercise date, are no risk and offer returns accordingly. Spread conversions are not risk free, just extremely low risk.
However, on a spread conversion, you have to be at least slightly bullish on the stock. And, with a spread reverse conversion, you have to be slightly bearish. Once you put on a portfolio of both spread conversions and reversals, you end up with a fairly risk free portfolio with a high yield, even though each position may have slight risk. |
