Variable-price conversion
Variable-price conversion is a feature where the price at which a note or preferred converts into common stock resets to a formula based on recent trading prices, often at a discount.
Last verifiedHow it works
Instead of a single fixed conversion price, the security converts at a price calculated each time the holder converts. A typical definition reads like "the lesser of (a) $2.00 and (b) 85% of the lowest VWAP during the ten trading days before the conversion date". The window of days is the lookback period, and the percentage below market is the discount.
The structure exists in milder and more aggressive forms. A security that converts at the market price only after a default, or that has a floor price, behaves very differently from one that always converts at a deep discount to the lowest price in a long window.
Worked example
Hypothetical: Company X has preferred stock with a $500,000 stated value convertible at 85% of the lowest daily VWAP over the prior ten trading days. The stock traded between $1.10 and $1.40 over that window, with a lowest VWAP of $1.12. The conversion price is $0.952, so a holder converting $100,000 of stated value receives about 105,042 shares. If the stock is at $1.30 on the day of conversion, those shares are worth roughly $136,555.
Why it matters
The discount and the lowest-price lookback mean the holder can usually sell newly issued shares above its conversion price. Repeated conversions add supply, and if the price falls, each conversion produces more shares. When there is no minimum price, the security is a floorless convertible.
How to spot it
Read the definitions section of the note, warrant or certificate of designation filed as an exhibit to an 8-K or registration statement. Search for "Conversion Price", "lowest", "VWAP" and "Alternate Conversion Price". The guide Toxic convertibles walks through real-world term language.
See it on DilutionScan
Companies DilutionScan covers, with the instruments read from their SEC filings. Open one to see each instrument and the filing it came from.
- GNSGenius Group Limited8 warrant series, 1 convertible, 1 ATM program, 3 shelf registrations and 2 completed offerings on file
- SMXSMX (Security Matters) Public Limited Company Ordinary Shares10 warrant series, 8 convertibles, 2 equity lines, 4 shelf registrations, 4 S-1 registrations and 2 completed offerings on file
- MLGOMicroAlgo, Inc. Ordinary Shares2 warrant series, 5 convertibles and 2 shelf registrations on file
- HOLOMicroCloud Hologram Inc. Ordinary Shares2 warrant series, 1 convertible, 3 shelf registrations and 2 completed offerings on file
Guides that use this term
- How to Trade Penny Stocks Without Getting DilutedA dilution-first guide to penny stocks. How new shares reach the tape, which SEC filings announce them, worked examples, and a 20-minute filing check.
- How to Check a Penny Stock for Dilution in 20 MinutesA six-step filing checklist for dilution risk in a small-cap stock. What to open on EDGAR, which phrases to search for, and the four numbers to write down.
- Toxic Convertible Notes: How Variable Pricing WorksToxic convertible notes explained: how variable conversion prices, VWAP discounts and lookback windows work, and what happens to share counts with no floor.
Related terms
Check any ticker for dilution
DilutionScan reads each covered company's SEC filings and lists its warrants, convertibles, ATM programs, shelves and S-1s on one page, with a dilution rating and cash runway.
Definition from the Signal8 Academy glossary. Educational content only. DilutionScan and Signal8 are not broker-dealers or investment advisers, and nothing here is a recommendation to buy or sell any security.