Parity Price
Categories: Trading
You’re waiting…you’re waiting…it’s time. The parity price has been reached. Time to roll down the top on that convertible bond.
The parity price is the general idea of when two assets are equal in value. It might be two currencies, or two stocks. Oftentimes though, parity price refers to when convertible bonds equal the price of shares of common stock.
Convertible bonds can be converted into stock, but that only really makes sense to do when the investor won’t lose money on the conversion. For instance, you have a $1.6k convertible bond with a market price of $1.8k. The bond can be converted into 30 shares of biz stock. To break even with the going market rate of your bond, you wouldn’t want to convert it to stock until you get at least $1.8k in stocks from the conversion. That means $1.8k divided by 30 shares, or $60 per share: the parity price. You’ll want to wait until shares are selling for at least the parity price of $60 before you even think about touching that big, red conversion button.
