1 liner for these 2 strategies..

  1. Convertible arbitrage Strategy - 2. Distressed Securities Strategy -
  1. convertible bonds 2. diverisfy
  1. buy convertible & short the shares 2. buy shares & buy CDS ?

you both are correct on the 1st Srategy, but not on the 2nd one.

  1. buy the bond and buy the CDS ?

Buy the debt and short the equity? Edit: pdxanalytics sounds better than my idea. I’m just throwing whatever I can think at this question.

Nib is correct… but do that on a company in distress

why buy the debt AND short the equity?

Sorry pdxanalytics - my new bed is too cozy to get up and fetch the book. Even nib is partially correct… Here is the para from the book… “Take long position in the financial securities (debt, Pref Stock, Comm Stock) of a financially troubled company and hold the securities through the subsequent restructuring or bankruptcy process”

isn’t this stuff deep in SS17…credit derivatives? i guess if the securities are already distressed, you proly wouldn’t want to buy a CDS b/c the premium would be through the roof. “restructuring or bankruptcy process”…that smells of Asset valuation somewhere…why would you hold the this crap if it’s distressed?

for distressed securities, if the share price is below the BVPS, you would still profit if the company liquidates?

No, not necessarily… BVPS is a pure accounting measure… Take Bear Stearns for example…

i checked the text…obscure professor note… “Take long position in the financial securities (debt, Pref Stock, Comm Stock) of a financially troubled company and hold the securities through the subsequent restructuring or bankruptcy process” - as Dinesh mentioned. It still would not be a bad idea in my opinion to buy a CDS for protection…

and hence I posted this question… I got confused after reading the professor’s notes