Fixed income equivalent

Fixed income equivalent

Also called a busted convertible. Convertible security that is trading like a straight security because the optioned common stock is trading well below the conversion price.

Busted Convertible Security

A convertible security in which the underlying stock is trading 50% or more below the value of the convertible option. This renders the convertible option nearly worthless, and the security acts like common debt. This is considered a low risk investment with the possibility of high return because a busted convertible usually has a fixed return, and there is a small chance that the stock will recover allowing the investor to exercise the convertible option.