How to Get a Conversion

What is a conversion?

A conversion is a long position in a stock that also has puts and calls associated with that position that ensures you are always "net flat" on that position, no matter if the price of the stock goes up or down.

The benefit of this is that you legally own the stock and can in-effect "go short" for the size of your conversion without having to mark the order as a short order. This can make it possible to get into a "short" position that  you might not have otherwise been able to get.

What does a conversion cost?

There are costs for putting on a conversion and these depend on the number of shares and the volatility of the stock.  Generally speaking, the cost to put on a conversion is about 13 cents to 19 cents/share. This depends on how good a deal can be achieved.  For 100 shares, basically you are looking at:

• 3 cents/share commission for the call
• 3 cents/share commission for the put
• 1 cent/share commission for the stock
• 1/16 of a point/share for the spread (and another 1/16 if tough market conditions make it necessary)

One thing you have to be careful about with a conversion is that your options can be "called away".  If this happens, then you no longer have the conversion for the number of shares that were called away. While you should check your assignment sheets every day to make sure that your stock wasn't called away. If the stock was called away, and you sell without marking the order short, you're doing an illegal short sale and this can cause serious reprecussions for you and other members of the firm.

To get a conversion:

1. Use this form to request a confersion.
2. Once you have the conversion, call the VTRM and let him know.
3. Start hitting the bid!

To get rid of a conversion:

If you want to get rid of a conversion, you will incur additional costs in terms of commissions.  To get rid of a conversion, just call Peter and tell him you want to get rid of it. They will either take it "in-house" or try to get rid of it on the market. If they are able to take it in-house, it will be less expensive.