Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : Convertible Hedge investors? -- Ignore unavailable to you. Want to Upgrade?

To: Ted S who wrote (56)	1/27/1998 1:43:00 PM
From: chevalier	Respond to of 107

You should also remember to look for a higher yield (although this usually occurs when a bond is below par). The higher the yield the less the convertible will drop when the shares drop in price, thus increasing the spread and the possibility of a capital gain. Whereas debentures that are trading above par have a lower yield, and a drop in their share price will lead to a similar drop in the price of the debs, leaving the spread unchanged until the yield increases. With regards to the premium: the lower it is the less funds one has to invest. In a hedge trade the maximum loss is limited to the total investment, less interest received. So the lower the investment, the lower any possible loss, as the bond can always be converted into the number of shares that one is short. I also usually like to pick bonds that cannot be redeemed by the company for at least 2 to 3 years. This will give you enough time for your plan to take action. The last thing that I do is obtain a prospectus of the debenture issue, and check carefully if the debs can be redeemed before they are due. Some contain a clause that permits this if the common shares exceed a fixed price. This has to be considered carefully to avoid potential losses. hope this helps Ari