Reverse Conversion

A “reverse conversion” might sound like some kind of tricky Top Gun-esque flying maneuver, but it’s actually a not-so-tricky options strategy.

It’s basically got three steps to it: we buy a call option, we sell a put option, and we short sell the underlying stock. Easy peasy, lemon squeezy. This is a good strategy to consider when we think a put is overpriced. Short selling the stock acts as kind of a buffer, or hedge, protecting us if the stock price goes over or under our strike price, and hopefully helping us make a little money while we’re at it.