A convertible whose price is influenced by movements in both interest rates and share prices. Broadly speaking, a noncallable bond that matures in three years might be considered balanced if the premium over parity value lies between 15% and 40% while the premium over fixed income value is only in the range 15%-25%.

In other words, a balanced convertible is an at-the-money convertible (ATM convertible), i.e., its underlying stock price is close, or equal, to the conversion price. The convertible is balanced in the sense that its value is impacted by both the underlying price and interest rates. It is said to be in the “sweet spot”, meaning that it will capture two-thirds of the upside movement in the underlying stock with only one-third of the downside.