A convertible whose underlying share price is below the conversion price. As share prices fall, the convertible’s price becomes less sensitive to the share price and more sensitive to changes in interest rates. Technically speaking, the convertible’s delta with respect to the the share price movements decrease. However, a decline in the convertible’s price would drive the yield on the security up, consequently alluring buyers, both fixed-income investors and equity investors.

Likewise, as the share price falls, the value of embedded option (equity call option) falls down to a level that the convertible would trade basically as a straight bond.