Reverse convertible

In brief: Structured security with a fixed coupon and a possible share delivery instead of cash redemption.

Meaning in practice

A reverse convertible usually pays an above-average coupon because the investor accepts the risk of receiving shares rather than principal at maturity. If the underlying falls below the relevant level, the delivered shares can be worth materially less; the coupon compensates for equity and issuer risk rather than creating a risk-free extra return.

Context for investors and traders

For investors, the term becomes practical in the context of objectives, time horizon, risk capacity and costs. A suitable solution can differ between two people even when they consider the same product or metric.

How to use this in practice

Use the term first to describe the situation and add verifiable data: time frame, benchmark, costs and liquidity. Only then does it become an assessment that can be connected to an investment objective and risk budget.

What to keep in mind

Avoid false precision. Many market terms describe probabilities or historical patterns; they neither guarantee a return nor replace the review of a specific security.