Relative value arbitrage

Hi, I came across few concepts when conducting the operational DD on funds. Hoping to get some help. 1. A convert arb shop mentioned that they focus on trading vega and gamma as well as focusing on high delta issue. I’m trying to understand how is this beneficial in various market environments. 2. Again, on the convert arb. The manager says they always trade the embedded option whether it’s callable or not. Now my question is, while trading that give you some upside potential, wouldn’t that skew the risk? 3. On an equity RV shop, they mentioned they play on liquidation events. Not quite sure how it works in an event like that? What o long and short? Any feedback is appreciated, thank you in advance.

yuoska Wrote: ------------------------------------------------------- > Hi, > > I came across few concepts when conducting the > operational DD on funds. Hoping to get some help. > > 1. A convert arb shop mentioned that they focus on > trading vega and gamma as well as focusing on high > delta issue. I’m trying to understand how is this > beneficial in various market environments. > > 2. Again, on the convert arb. The manager says > they always trade the embedded option whether it’s > callable or not. Now my question is, while trading > that give you some upside potential, wouldn’t that > skew the risk? > > 3. On an equity RV shop, they mentioned they play > on liquidation events. Not quite sure how it works > in an event like that? What o long and short? > > Any feedback is appreciated, thank you in advance. 1) CA is a strategy based on exploiting mispriced volatility or vega so they will go long or short depending on what their model views as rich or cheap. Based on their view of volatility they will either be long or short gamma, they go hand in hand. As far as their view on high delta issues, these could be directional plays while hoping to catch some positive convexity - similiar to being long a call option. Not sure if that’s what you were looking for or not, but that’s my 2c.