What is conversion premium?Conversion Premium

How much more the convertible costs than its conversion value = convertible price ÷ conversion value − 1; when negative, buying the convertible and converting is cheaper than buying the stock, opening a possible arbitrage.

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Arbitrage Strategies
Convertible Bond Conversion Arbitrage
A convertible bond can be swapped for stock at an agreed price. When the stock jumps and the convertible lags, buy the convertible, convert, and sell the stock to pocket the gap, as long as you lock away the overnight risk.

Related terms

borrowing shares
convertible bond
conversion price
conversion value
bond floor

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