Hung Convertibles

A hung convertible is a convertible bond that is trading below its conversion price. This means that the bondholder would lose money if they converted the bond into shares of the underlying stock.

There are a few reasons why a convertible bond might trade below its conversion price. One reason is that the underlying stock is performing poorly. If the stock price is falling, then the conversion price is also falling, and this makes the bond less valuable.

Another reason why a convertible bond might trade below its conversion price is that interest rates are rising. When interest rates rise, the value of bonds falls, and this includes convertible bonds.

Hung convertibles can be a risky investment. If the underlying stock price continues to fall, then the bondholder could lose a lot of money. However, if the stock price recovers, then the bondholder could make a significant profit.

Convertible bonds are often used as a way to hedge against stock price declines. If the stock price falls, then the bondholder can convert the bond into shares of stock and lock in a profit. However, if the stock price rises, then the bondholder can keep the bond and continue to receive interest payments.

Hung convertibles can be a good investment for investors who are willing to take on some risk. If the underlying stock price recovers, then the bondholder could make a significant profit. However, if the stock price continues to fall, then the bondholder could lose a lot of money.