yes, but irrespective of plight of equity or hybrid prices, the...

yes, but irrespective of plight of equity or hybrid prices, the fact remains (does it not) that TIMPB=4 times TIM on exchange in Sep09; Please comments as I am unsure why this is not obvious. I look forward to being corrected if I am seeing this wrong,

Noting conversion is 4:1 max for TIM/TIMPB

If TIM = say 10 cents (today's price), TIMPB is worth 40 cents (and this does not take into account the 13.5 cents fully franked dividends);

So, mathematically (and disregarding the dividends), you could buy TIMPB today at 30 cents and sell short 3 TIM at 10 cents;

Neglecting interest coupon 13.5 cents fully franked,
at TIM=zero, payout is ZERO (breakeven)
at TIM=20 cents, payout is -30 cents on short TIM and plus 80 cents value on conversion-+50 cents
at TIM=50 cents, payout is -$1.20 on short TIM and $2.00 on TIMPB exchange=+80 cents
at TIM=70 cents, payout=-$1.80 on shorts and plus $2.00 on exchange = +20 cents
at 80 cents, payout=-$2.10 on CFD short and plus $2.00 on exchange = -$0.10

Note also you can stop out of short prior to major rally. You could change hedge ration to suit.

Comments welcome