A convertible whose underlying stock price exceeds the conversion price (that is, it is in the money: an in-the-money convertible). As the underlying stock price increases, the convertible becomes more correlated to changes in the underlying price, and less sensitive to changes in interest rates, and vice versa.

Consequently, the conversion premium reduces to the advantage of the investment value premium, which becomes higher. In such a situation, the convertible’s parity with the underlying price improves, leaving the convertible with a lower downside protection.