Shareholders getting nervous about the pace of Finisar's ( FNSR) recent run-up, but who still sense upside in the shares, should consider a hedge fund tactic: buying the convertible bond. Finisar, which has been riding a rally in the fiber-optic space, is already up 135% this year to about $4.86, trading a crushing average of 12 million shares a day. "Finisar is a company that many consider the gold standard for fiber-optics testing equipment," says Eric Hage, chief investment officer at convertible arbitrage hedge fund Mohican Financial Management in Cooperstown, N.Y. The shares are benefiting from a reversal of fortune. After losing money for years, it is expected to earn about $9 million this year and $52 million next year, according to Thomson First Call. "Finisar has a history of terrible earnings," says a hedge fund manager. "It's always good when earnings move from negative to neutral or positive." Bulls have enjoyed a nice ride, but at current levels (30 times this year's Thomson First Call consensus), the air is getting thin. "We just sold our position," says one hedge fund manager, who had been among the top 20 holders. Insiders have sold more than 5 million shares over the past six months. Clearly, caution is appropriate -- and that's where the convertible bonds come in. "If you know the stock price is going to go higher, you're better off buying the stock," says Hage. "But if you're bullish but not sure, buying the convertible bond is a more attractive risk/reward play." Here's how it works: Finisar's convertible bond pays a 2.5% coupon and can be converted into 270 common shares. Currently, the bond trades in the secondary market for $1,440, about 10% more than those 270 shares are worth on the Nasdaq. The premium reflects factors including the volatility in the stock, which has basically quadrupled in a year.