advancedLow RiskNeutral / Arbitrage
Reverse Conversion
Short stock + long call + short put. An arbitrage play exploiting put-call parity.
What is a Reverse Conversion?
A reverse conversion combines short stock, long call, and short put (same strike, same expiration). By put-call parity, this should be nearly risk-free — the combined position is equivalent to a short bond. If options are mispriced, there's an arbitrage profit. In practice, this is a market-maker strategy.
When to use it
Used by professional traders and market makers to capture mispricings in put-call parity. Retail traders rarely have the speed or margin efficiency to execute this profitably.
Structure
Short 100 shares + buy 1 call + sell 1 put, same strike and expiration.
Key Metrics
Max Profit
Small credit from the put-call parity mispricing.
Max Loss
Small — if interest rates or dividends shift unexpectedly.
Breakeven
Approximately at the cost of carry (interest rates and dividends).
Greeks Profile
Near zero delta, theta, vega, gamma — it's essentially a risk-free position.
Tips & Best Practices
- 1This is not a retail strategy — spreads and commissions eliminate any edge.
- 2Understanding this trade teaches you put-call parity deeply.
- 3The conversion (opposite: long stock, short call, long put) is more commonly seen.
- 4Market makers use conversions to remain delta-neutral while holding inventory.
See it in action
Model a Reverse Conversion with a real ticker. See the P&L chart, heatmap, and exact breakevens.
Open Reverse Conversion Calculator →