Convertible Arbitrage
Convertible arbitrage compares a convertible security with the issuer's stock, credit risk, volatility, and hedge cost.
Event-driven and capital-structure arbitrage terms used to analyze merger spreads, convertible hedges, and deal-completion risk.
Deal, convertible, and risk arbitrage covers strategies where the trade is driven by a corporate event, a hybrid security, or a spread between deal value and market price. These are not certain-profit arbitrages. The return depends on deal terms, financing, borrow availability, liquidity, regulatory review, hedge quality, and the time it takes for the event to resolve.
Use this section to separate three related ideas. Merger Arbitrage focuses on announced M&A spreads. Risk Arbitrage is the broader event-driven label often used for takeover and deal-risk trades. Convertible Arbitrage compares a convertible security with the issuer’s stock, credit, rates, volatility, and hedge cost.
The common thread is relative value: the trader is not simply saying “buy this security.” The analysis asks whether the spread or hedge is wide enough after transaction costs, financing costs, short-borrow costs, taxes, slippage, and scenario risk.
| Term | Main question | Evidence to review |
|---|---|---|
| Merger arbitrage | Is the target’s trading price attractive relative to the announced deal terms? | Merger agreement, proxy, tender-offer materials, antitrust timing, shareholder vote, financing conditions |
| Risk arbitrage | Is the market mispricing the probability, timing, or break risk of a corporate event? | Deal filings, regulatory approvals, financing documents, competing bids, litigation, borrow and hedge data |
| Convertible arbitrage | Is the convertible security mispriced relative to the stock, credit risk, volatility, and hedge? | Convertible indenture, conversion terms, bond price, stock borrow, delta, credit spread, liquidity |
Use the core Arbitrage page for the general concept. Use this section when the trade depends on a corporate event or a hybrid-security hedge. Use the broader Event-Driven Investing page when the event set includes restructurings, litigation, spin-offs, or distressed situations beyond M&A spreads.
These strategies are educational topics, not recommendations. A spread that looks large may reflect real risks that are not visible in a simple price comparison.
Choose a subsection first. Deeper term pages live inside each subsection, which keeps large topic hubs readable.
Convertible arbitrage compares a convertible security with the issuer's stock, credit risk, volatility, and hedge cost.
Merger arbitrage is an event-driven strategy that trades the spread between a target company's market price and the expected merger consideration.
Risk arbitrage is event-driven trading that prices the probability, timing, and downside risk of corporate transactions.