Conversion price
Definition · Level 12 · Exotics & structured
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Face value of a convertible ÷ the number of shares it converts into: the share price at which converting starts to pay.
Example
€1,000 ÷ 25 shares = €40.
Where Tradecraft teaches it
Level 12 · Exotics & structured, in the lesson “Convertible bonds”: A bond plus a call on the issuer’s shares: conversion price, parity, premium and the bond floor.
Related terms
- Bond floorValue of a convertible as a plain bond, ignoring the equity option: its downside support, which drops if the issuer’s credit worsens.
- Conversion premiumHow much more a convertible costs than the shares it converts into, as a % of their value.
- Convertible arbitrageLong the convertible, short delta-worth of the shares: buying the embedded option cheaply and earning carry.
- Convertible bondCorporate bond the holder can exchange for a fixed number of the issuer’s shares: a bond floor plus a call on the stock.
- Parity (conversion value)Market value of the shares a convertible turns into: shares per bond × share price.
- Asian optionAverage-price option: its payoff uses the average of the price on a set of dates, so it is less volatile and cheaper than the vanilla.