Thank you for your thoughtful feedback! Let me address your points and clarify the calculations:


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1. Drop from $530 to $370

You’re correct that the convertible bond behaves like a call option, and the embedded option loses value as the price drops. While the $32 million gain from buying back 200,000 shares at $370 (initially shorted at $530) is accurate, this calculation isolates gamma trading profits. It doesn’t reflect the broader P&L impact, which includes the loss on the bond’s option-like component.

Gamma Profit: (530 - 370) × 200,000 = $32 million

Option Value: Declines, reducing the total P&L.



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2. Rally from $370 to $800

The profit calculation (800 - 370) × 200,000 represents gains from re-establishing short positions dynamically during the rally. After buying back shares at $370, gamma trading involves selling shares incrementally at higher prices, capturing volatility-driven profits.

Dynamic Shorting: Shares sold at higher prices after rebuying.

Separate Gains: These profits are distinct and additive to the initial $32 million.



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3. Net P&L at $800

Your focus on the call option’s gains and short losses reflects the total P&L:

Call Option Gains: As the bond delta approaches 1, the intrinsic value rises significantly.

Short Position Loss: (800 - 370) × 300,000 = $129 million.


Gamma trading profits offset some losses and demonstrate the strategy’s reliance on volatility exploitation.


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Conclusion

The provided calculations isolate gamma trading profits. For a full P&L analysis, combining the embedded option’s value changes with short position adjustments provides a comprehensive view. Let me know if you'd like to dive deeper into any specific aspect!