# How Conversion Arbitrage Works.

Conversion arbitrage is a type of trading strategy that involves the simultaneous purchase and sale of two different options contracts with different strike prices, but with the same expiration date. The trader is looking to profit from the difference in the price of the two options contracts.

For example, let's say a trader buys a call option with a strike price of \$50 for \$2 and sells a call option with a strike price of \$55 for \$1. The trader is betting that the price of the underlying asset will be above \$50 at expiration, but will not be above \$55. If the price of the underlying asset is above \$50 at expiration, the trader will make a profit from the difference in the price of the two options contracts. If the price of the underlying asset is below \$50 at expiration, the trader will lose money.

### How can I do arbitrage in Nifty?

Arbitrage is a trading strategy that seeks to profit from price discrepancies in different markets. For example, if the price of a stock is lower in one market than in another, an investor could buy the stock in the first market and sell it in the second market, pocketing the difference.

To do arbitrage in Nifty, you would need to find price discrepancies between different markets. For example, you could compare the prices of Nifty stocks in the Indian stock market with the prices of those same stocks in the US stock market. If you found that a stock was trading at a lower price in the US than in India, you could buy the stock in the US and sell it in India, pocketing the difference.

Of course, arbitrage opportunities are rare and they tend to disappear quickly, so you would need to be very quick to take advantage of them. How do convertible bonds work? Convertible bonds are a type of bond that can be converted into shares of the issuing company's stock. The conversion price is typically set at a premium to the current market price of the stock, which means that the bondholder will receive more shares than if they simply bought the stock on the open market.

The bondholder has the option to convert the bond into shares at any time up until the bond matures. If the stock price is above the conversion price at that time, the bondholder will likely convert the bond into shares. If the stock price is below the conversion price, the bondholder will likely hold onto the bond until it matures, at which point they will receive the face value of the bond plus any accrued interest.

Convertible bonds are a hybrid security, which means they have characteristics of both bonds and stocks. They are typically issued by companies that are growing rapidly and need to raise capital, but may not yet be able to get a good interest rate on a traditional bond. Convertible bonds give the issuing company the flexibility to pay a lower interest rate than it would on a traditional bond, while still giving bondholders the potential to benefit from the company's growth. What is a forward conversion with options? When an investor buys a call option, they are said to be "going long" the call. This is because the investor expects the underlying security to increase in value, and they want to profit from that increase by buying the call and selling it at a higher price.

However, the investor can also choose to "convert" the call into the underlying security. This is known as a "forward conversion." The investor does this by exercising the call, which gives them the right to buy the underlying security at the strike price. The investor then immediately sells the underlying security at the current market price.

The benefit of a forward conversion is that the investor can lock in a profit even if the underlying security does not increase in value. For example, let's say an investor buys a call with a strike price of \$100 and the underlying security is currently trading at \$105. If the investor exercises the call and sells the underlying security, they will make a profit of \$5. However, if the underlying security only increases to \$106, the investor will still make a profit, but it will be less than if they had just sold the call.

The downside of a forward conversion is that the investor is exposed to the risk of the underlying security declining in value. In our example above, if the underlying security declines to \$104, the investor will still make a profit on the call, but they will lose money on the underlying security. What is another name for arbitrage? The word "arbitrage" is used in finance to describe the simultaneous purchase and sale of an asset in order to profit from a discrepancy in the price. It is also known as "relative value trading" or "pairs trading".

What is arbitrage in finance? Arbitrage is a type of trading that attempts to take advantage of price discrepancies in different markets. For example, if you think that the price of a stock in the US market is going to go up, but the price of the same stock in the UK market is going to go down, you could attempt to buy the stock in the US market and sell it in the UK market, hopefully making a profit in the process.

Arbitrage can be a risky proposition, however, as it relies on being able to correctly predict future price movements in different markets. If you are wrong about even one of these predictions, you could end up losing money instead of making a profit.