Method by which a brokerage earns interest on its customers' stock holdings by selling a similar position short and investing the proceeds, usually in short-term money market instruments. The short position is usually hedged in order to protect against risk. The most common way of carrying out a reverse conversion is to short the stock, buy a call option and write a put option. Whether the brokerage makes money on the position depends on the borrowing costs for the short position, and the call and put premiums.
Related information about reverse conversion:
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Figure 7 shows some hypothetical prices (altered from our previous actual example) for ABC stock to illustrate the idea of a December 75 reverse conversion's ...
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- Options arbitrage - Wikipedia, the free encyclopedia
A reversal (or reverse conversion) position is: long a call,; short a put, and; short the underlying. The call and put have the same strike value and expiration date.
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Reverse Conversion (Reversal). If the options are relatively underpriced, the reversal is used instead to perform the arbitrage trade. Ready to start trading?
- Reverse Conversion: Definition from Answers.com
technique whereby brokerage firms earn interest on their customers stock holdings. A typical reverse conversion would work like this: A brokerage firm.
- Reverse conversion - Financial Dictionary - The Free Dictionary
A technique in which brokerage firms earn interest on the stocks they hold for their customers by selling the short and investing the proceeds in money market ...
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A concise, illustrated tutorial, with examples, on the put-call parity theorem, including the maintenance of put-call parity through conversion and reverse ...