How might the market price the convertible notes relative to the underlying shares?

Pricing dynamics

Because the notes carry a 0 % coupon and a ten‑year maturity, their market value will be driven almost entirely by the conversion feature. Investors will price the notes at the level that equates the present value of the future equity they can obtain (the “conversion value”) with the note’s par value, plus a modest spread for credit risk and liquidity. In practice this means the notes will trade at a conversion premium or discount relative to the current share price that reflects:

• Conversion ratio – the number of shares received per $1,000 of principal. A high ratio (i.e., a low conversion price) makes the notes more “in‑the‑money” and pushes the market price toward a discount to the underlying stock; a low ratio creates a premium.
  
• Credit spread – DigitalOcean’s credit profile and the 0 % coupon force the spread to be baked into the conversion premium. If the market perceives higher credit risk, the notes will demand a larger discount to the conversion value.
  
• Equity volatility & upside potential – With a long‑dated conversion, the notes are effectively a deep‑out‑of‑the‑money call on the stock. Higher expected volatility or a bullish outlook on DigitalOcean’s growth (e.g., expanding cloud‑services revenue, strong cash‑flow generation) will compress the premium, allowing the notes to trade closer to parity with the underlying shares.

Trading implications

• Long the notes / short the stock – If you expect DigitalOcean’s share price to rise above the implied conversion price, the notes will capture that upside with a built‑in “call” exposure at a low‑cost financing rate. A typical play is to go long the convertible notes while hedging the short‑stock exposure, targeting a net‑credit from the conversion premium.
  
• Short the notes / long the stock – Conversely, if you think the stock is over‑valued relative to the conversion price, the notes will be priced at a discount. Selling the notes (or shorting them) and buying the underlying shares can lock in the spread, especially if you anticipate a price correction in the equity.
  
• Watch for dilution and reset clauses – Upsized $550 M issuance may increase future dilution, which could widen the conversion premium. Keep an eye on any “reset” or “make‑whole” provisions that could adjust the conversion price if the stock trades far below the original level.

In short, the market will price the 0 % convertible senior notes near the present‑value of the implied equity conversion, with the premium/discount shaped by DigitalOcean’s credit risk, the conversion ratio, and expectations for share‑price upside. Traders can exploit the spread by pairing positions in the notes with the underlying stock, positioning for either a rally (long notes, short stock) or a pull‑back (short notes, long stock) depending on their view of the equity’s trajectory.