Conversion Calculator

By Yojana Mandon · Updated June 2026 · 2 min read · Risk disclaimer

A conversion owns 100 shares and wraps them in a synthetic short — long a put and short a call at the same strike. The combined position has a fixed value regardless of where the stock goes: a defined, near-riskless arbitrage that captures small mispricings in put-call parity.

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Key characteristics

• Own stock + long put + short call at the same strike: a locked, flat payoff.
• Profit/loss is essentially fixed, set by put-call parity and the cost of carry.
• A market-maker / arbitrage structure, not a directional trade.
• Edge is tiny in practice — fees, spreads and early assignment usually eat it.

How a conversion works

The long put and short call at the same strike form a synthetic short stock. Combine that with the 100 real shares you own and the directional exposure cancels out — the position is worth the strike at expiration no matter what, so the payoff is a flat line.

Any profit comes from a mispricing: if the call is rich relative to the put (after interest and dividends), the locked-in value sits slightly above your cost. This is the practical expression of put-call parity.

Risks and reality

On paper it is riskless, but real frictions bite: commissions and bid/ask spreads on three legs, the cost of carrying the shares, dividend timing, and the chance of early assignment on the American-style short call, which breaks the lock.

Conversions are mainly a tool for market-makers managing inventory and financing, and a teaching example of put-call parity. Retail traders rarely capture a net edge after costs.

On the Greeks, the Conversion is close to vega-neutral, so implied-volatility shifts have little net effect.

Managing the trade and common mistakes

A conversion is designed to lock in a fixed payoff at entry, which means active management is almost never the point. Once you are in, the only meaningful trigger to act is early assignment on the short call. If the call goes deep in-the-money — most dangerously just before an ex-dividend date — the call buyer may exercise to capture the dividend, breaking the lock. Experienced traders monitor the short call's extrinsic value; when that value collapses toward zero and a dividend is imminent, they either close the entire position or roll the short call out to a later expiry before assignment happens. Rolling one leg in isolation changes the economics of the arbitrage, so any adjustment should be evaluated as a whole-position decision.

The most common mistake retail traders make is entering a conversion without first netting out all costs: commissions on three legs, the bid-ask spread on each leg, and the cost of carrying the shares. The theoretical edge in a conversion is measured in cents; it evaporates quickly once real friction is added. Beginners also underestimate how often the apparent mispricing has already been captured by market-makers by the time a retail order reaches the market. If the net credit after all costs is not clearly positive, there is no trade — do not assume the calculator's midpoint prices are achievable.

At expiration, pin risk is essentially irrelevant for a conversion: the payoff is flat by construction, so it does not matter whether the stock closes above, at, or below the strike. What does matter is early-assignment risk on the short call throughout the life of the trade. Stocks with high borrowing cost or large upcoming dividends are the conditions that most often trigger early exercise. If you hold a conversion through an ex-dividend date on an American-style option, verify the short call's extrinsic value the day before — if it is less than the dividend, the call is very likely to be exercised and the arbitrage is broken.

Calculate it live

Use the free OptionProfit Conversion calculator to load a live option chain, build the trade, and instantly see the payoff chart, breakevens, probability of profit, Greeks and a Monte Carlo simulation of outcomes.

Frequently asked questions

Educational use only. Quotes are delayed ~15 minutes and nothing here is financial advice. Options trading involves substantial risk of loss. Privacy Policy · Terms & Conditions.