A strategy in which a long put and a short call with the same strike price and expiration are combined with long stock to lock in a nearly risk less profit. The process of executing these three-sided trades is sometimes called conversion arbitrage.
See Also:
Conversion Arbitrage: A riskless transaction in which the arbitrageur buys the underlying security, buys a put, and sells a call. The options have the same terms.
Reversal/Reverse conversion: An investment strategy used by professional option traders in which a short put and long call with the same strike price and expiration are combined with short stock to lock in a nearly riskless profit. For example, selling short 100 shares of XYZ stock, buying 1 XYZ May 60 call, and writing 1 XYZ May 60 put at favorable prices. The process of executing these three-sided trades is sometimes called 'reversal arbitrage.'
