CONVERGENCE TRADE
Trading strategy where similar securities are bought and sold simultaneously in the expectation that prices will converge in an orderly fashion.
1. A way of taking advantage of mispriced options by creating a synthetic short futures position and hedging market risk by buying a futures contract against it. Thus if a put is undervalued, a trader buys it, at the same time selling a fairly valued call and buying a futures contract. The same strategy can be applied if the call is mispriced. If the option is truly undervalued, the trader earns a riskless profit. The whole exercise relies on put-call parity
2. The act of converting a convertible bond into equity.