Thanks for explaining the difference in how these two derivatives are constructed. Can you tell me why you would use one over the other, ie. is a conversion used for an extended period of time and why is it preferable to the bullet for an extended period? It would seem to me that Conversions would be more expensive to put on since there is an additional option transaction that needs to take place, is that correct?
Depends on the stock you want the conversion on. Once I paid 1.5 points to get the conversion on ASW (it's delisted now, and at the time was hard to borrow), other times I would get credit (like 0.25. 0.5). Also on the conversion you have to pay the interest. Coversions make sence if you trade the same stock day in, day out for a long period of time.