Is the bond convertible immediately?
In some cases the issuer will set a date in the future only after which the bond can be converted to common stock. Others will allow conversion only during a period of, say, three months out of every year. This will not make it impossible to create the hedge; you’ll just have to speak with your broker regarding any other potential cash or margin requirements that will be needed during the non-conversion periods. In most cases, a Treasury bill (T-bill) or other money market holding should be sufficient. (Find out what margin is, how margin calls work, the advantages of leverage and why using margin can be risky in our Margin Trading tutorial.) • Are there shares available to short sell? And if your broker does have them, what will the borrowing fee be? This can vary depending on the availability and volatility of the stock and can range from as low as 0.5% up to 50% a year! • Check the call features. Be sure to check any special call features in the prospectus to ensure that investors a
