Convertibles are hybrid securities that combine a straight bond with an equity option. A convertible arbitrage hedge fund is typically long on convertible bonds and short on a proportion of the tokens into which they convert. Our objective is to maintain a delta-neutral position as the market fluctuates.
Convertible arbitrage thrives on volatility. The more the value of the tokens fluctuate, the more opportunities arise to adjust the delta-neutral hedge and book trading profits. Funds thrive when volatility is high or declining, but struggle when volatility spikes—as it always does in time