Fantastic question! No - there will never be a forced conversion. In theory, you can hodl SURGE forever and earn the 16.67% yield on your cost basis
That being said, the economic incentive to convert is built in. For example, if you hold 500 SURGE when LSTR reaches $1,000, SURGE's conversion value would be 10 LSTR or $10,000.
The 16.67% yield is on your cost basis (not on the current value of SURGE). So SURGE's value is $10,000 but you're earning 16.67% yield on $500 ($0.15 per 1 SURGE = 16.67% effective yield on a cost basis of $0.90)
This is modeled after Microstrategy's STRK product
Well, if LSTR is well above $50 and SURGE can be converted at any time, then for arbitrage reasons SURGE would always be 1/50 of LSTR price (at least once you're done with ATM and SURGE supply is 2m) no?
So maximum dilution is actually 40k LSTR if 2m SURGE is reached. I think that's completely irrelevant, as it will only happen if LSTR is performing well, and then dilution should be okay.
Will you be using the remaining LSTR in treasury for similar vehicles like SURGE in the future?
I have my fingers crossed, if this works out, you'll sure be able to repeat that and LEO will really moon.
Got it. So realistically, it would make sense to convert it once there is some decent price movement over the $50 strike price. If you convert at exactly $50 and sell, you are basically getting your initial investment back and no longer getting yield on it. Once it moves significantly higher, say $70 per LSTR, then you would be getting your initial investment plus $20 per LSTR, so you could conceivably be making more total yield on those dollars than you could on the initial investment. You just have to find a new place to put that money that gives you that yield. Thank you!
Yes exactly right
Essentially, the opportunity cost rises as LSTR over performs the $50 strike. You'd do better to convert to LSTR shares and then sell and find another income-yielded product as you'd be significantly "in the money" and can use those proceeds to earn more income with a higher cost basis