Medarex (MEDX) is being acquired by Bristol-Myers (BMY). For stockholders, it’s nearly a double from yesterday’s close. For convertible investors, it’s a nice kiss on a trade that had very little risk.

How so?

Medarex has a convertible that was due to mature in May 2011. Yesterday before the announcement it was trading around $0.95 on the dollar. With its 2.25% coupon, that’s no great shakes. But with the deal, the bond is now around 115. So it becomes a 20% instantaneous return for something where, as it appeared, you were unlikely to do worse than a modest single-digit return over the next 2 years.

But this isn’t the whole story.

In the midst of the convertible nuclear winter, these bonds got as low as around $0.60 on the dollar. At the time, the company’s equity valuation was only several hundred million dollars, it had a $150 million convertible obligation due in 2 and a half years, and credit markets were slammed shut.

Still, history has told us that biotech firms are surprisingly (considering the outward direction of their cash flows) creditworthy. Their research is usually of some value to big-cap pharmaceuticals desperate to add to their pipelines as mature drugs lose their immunity to generics. What’s more, biotechs have invaluable information about doctors’ interest in treatments for various indications.

Anyway, if you bought the bonds around $0.60 on the dollar, you now have nearly a double. But even without the takeout, as long as the company had survived, you would have made an annual return of 25% had you held the bonds to maturity -- even if the company was just scrambling to stay alive -- which happens to be something biotechs are really good at.

Sometimes it’s important to review not only the ways to make the most money in best-case scenarios, but also the ways to make good money in almost all scenarios.