DEFINITION of 'Busted Convertible Security'

A convertible security that is trading well below its conversion value. The result is that the security is valued as regular debt because there is very little chance that it will ever reach the convertible price before maturity.

BREAKING DOWN 'Busted Convertible Security'

This is a convertible that is now a non-convertible because the convertible price is 50% or more above the current share price. Some investors have found success in trading busted convertibles. While the possibility of converting into stock is usually remote, busted converts usually trade at prices and yields very close to other nonconvertible debt (so you don't compromise returns). Meanwhile, if by chance the stock rebounds, the bond could become extremely valuable.

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RELATED FAQS
  1. What is a 'busted' convertible bond?

    Learn about busted convertible bonds; these are hybrid securities with conversion prices significantly higher than the market ... Read Answer >>
  2. What is the difference between convertible and reverse convertible bonds?

    The difference between a regular convertible bond and a reverse convertible bond is the options attached to the bond. While ... Read Answer >>
  3. Where does the stock come from when convertible bonds are converted to stock?

    First, let's define convertible bonds. A unique combination of debt and equity, they provide investors with the chance to ... Read Answer >>
  4. What is a Chinese hedge?

    A Chinese Hedge is a form of arbitrage by which an investor shorts a convertible bond and buys the underlying common stock. ... Read Answer >>
  5. Do convertible bonds have voting rights?

    Convertible bonds usually have no voting rights until they are converted. Even after conversion, they may not be granted ... Read Answer >>
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