What are Reverse Convertible Securities?

A reverse convertible is a short-term investment linked to an underlying stock. These securities offer individual investors a predictable, steady stream of income due to the payment of a high coupon. At maturity, the investor will receive either 100% of their original investment amount or a predetermined number of shares of the underlying stock, in addition to the stated coupon payment. If shares of stock are delivered to the investor, their value will be less than the original investment amount. It is important to note that the investor's earning potential is limited to the security's stated coupon.