Convertible bonds the best instrument to learn about the markets?

JonLivingston · Feb 25, 2023

I was doing some research about Brevan Howard (reason not important), then I somehow ended up here:

https://www.quora.com/Whats-it-like-to-work-for-a-big-hedge-fund-like-Brevan-Howard

And that lady that replied led me to read her post (never mind she was a trader at BH but now she's a project manager...):

https://www.linkedin.com/pulse/halo-effect-trader-mansi-singhal

But then after I read that (never mind the validity of what she describes, I don't care), my attention was caught by one LinkedIn commenter, who said the following (not the full comment):

FYI I think the best product to learn financial markets from are convertible bonds. They really have a mix of everything in them in s way that I have never seen in any other product.

Would you agree? And why.

newwurldmn · Feb 25, 2023

I was told earlier in my career that I should work in converts as well.

I felt it was a dying business and I think they really focused on the equity option part rather than the credit.

BMK · Feb 25, 2023

They really have a mix of everything in them

Convertible bonds

in some ways behave like a bond, because, well, they are bonds, and they have a principal face value and a coupon interest rate;
in some ways behave like common stock, because they can be converted into common stock, and
in some ways behave like a call option, because they give the holder the right to acquire common stock, at a specific price per share, for a certain period of time.

newwurldmn · Feb 25, 2023

BMK said:
Convertible bonds

in some ways behave like a bond, because, well, they are bonds, and they have a principal face value and a coupon interest rate;

in some ways behave like common stock, because they can be converted into common stock, and

in some ways behave like a call option, because they give the holder the right to acquire common stock, at a specific price per share, for a certain period of time.

But convertible bond trading isn't that complex.

There's a bond issuance at a mathematical discount. You buy the credit at fair value (so you hedge that); you buy the option part at a discount and hedge that to lock in a profit. Eazy Peezy.

Nobert · Feb 25, 2023

I think Buffet spoke about those in BRK's annual meeting of 1998. Not sure which year tho, but watching all of them would give few lessons.

You could start with 1994 on Youtube.

mikeriley · Feb 25, 2023

Convertible bonds the best instrument to learn about the markets?

I think the best instrument to learn about the market
is the instrument you plan on trading or investing.

I'm not looking at bonds to trade futures.

MrMuppet · Feb 25, 2023

mikeriley said:
I think the best instrument to learn about the market
is the instrument you plan on trading or investing.

I'm not looking at bonds to trade futures.

perhaps you should

2rosy · Feb 25, 2023

Best to understand the bare bones basics then can understand more structured products

mikeriley · Feb 25, 2023

perhaps you should

This would be an understanding I'm not familiar with.
It's an interesting idea, but in my philosophy of trading,
anything that directs me away from my strategy
is just noise.

My old mentor taught me a method to identify patterns
in futures and use price and cyclic analysis to trade them.

Therefore, I focus my attention only on the instruments
I trade. (Mainly NQ)

Just because it does not make any sense to me, does
not necessarily mean others may not find value in that
process.

newwurldmn · Feb 25, 2023

MrMuppet said:
perhaps you should

I’d rather trade equities in Dallas.