Convertible Hedge investors? Message Board

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Strategies & Market Trends : Convertible Hedge investors?

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To: Scott Mc who wrote (15)	6/7/1997 12:07:00 AM
From: Lorne Larson	of 107

Scott My understanding is that you set up your hedge ratio based on whether you think the stock will go up or down. In other words if you think the stock will drop you do a full hedge, and make money on the way down because the bond will not drop at the same rate as the stock and will stop dropping when it hits its investment value. If you think the stock will rise you do a ratio hedge and make money on the way up because you are short only a portion of the bond. On the way down you are protected because even though the stock drops faster than the bond you are only short a portion of the bond. I have two questions. First, what are your entry points ? In other words what do you want the bond to look like in terms of premium, investment value, etc. Second, how do you determine your hedge ratio if you are putting on a "long" position ? Regards

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