What is the conversion price and how does it compare to the current stock price?

Conversion price

DigitalOcean’s 0.00 % convertible senior notes due 2030 are priced to be convertible into common stock at $10.00 per share (the “conversion price”).

Comparison with the current market price

At the time of the announcement (mid‑April 2024), DigitalOcean’s shares were trading around $9.5 – 9.7 on the NY SE. The $10.00 conversion price therefore sits ≈5 % above the prevailing market level. In other words, the notes are currently “out‑of‑the‑money” for conversion – holders would only benefit from converting if the stock price climbs above the $10 threshold.

Trading implications

• Near‑term bias: Because the conversion price is higher than the market price, the notes behave more like straight debt for now. The 0 % coupon means investors are essentially betting on upside potential; the market will price the notes based on the probability of the stock reaching $10 before 2030. With the stock still below that level, the notes will trade at a discount to par, offering a modest yield to maturity for those willing to hold the bond.

• Upside catalyst: Any sustained rally that pushes DOCN above $10 (e.g., strong earnings, new cloud‑service wins, or a broader tech‑sector rally) would make conversion attractive, prompting bond‑holders to convert and potentially create buying pressure on the equity. Traders can watch for breakouts above $10 on higher‑than‑average volume as a signal that conversion‑driven demand may start to materialise.

• Risk management: Until the stock clears the $10 barrier, the primary risk is the equity’s ability to appreciate. A short‑position in the notes (or a long‑position in the stock with a stop near $9.5) could be used to profit from the spread if the market continues to discount the conversion feature. Conversely, a long position in the notes may be justified if you anticipate a medium‑term rally that lifts the share price above $10, unlocking the conversion premium.

In short, the $10 conversion price is modestly above today’s trading level, meaning the convertible notes are presently valued more for their debt component than for conversion potential. A clear upside move in DOCN toward or beyond $10 would be the key trigger for conversion‑driven equity demand and could present a short‑term trading opportunity.