Convertible arbitrage involves buying a convertible bond that can be exchanged for either cash or company stock in one year. The conversion ratio determines the value of the stock at the time of exchange, such as 20 shares per $1,000 cash. If the stock price is high, like $200 per share, the bond’s value increases significantly. Conversely, if the stock price is low, the bond’s value decreases to match the face value. This strategy takes advantage of market fluctuations to generate profits.
Source: https://www.bloomberg.com/opinion/articles/2024-12-05/microstrategy-has-volatility-to-sell