So it's a little bit interesting how this works. First is the following:

When you convert using the convert mechanism, the SBD converted gets destroyed and the corresponding amount of Steem is just created (at the feed price after the 3.5 day delay).

Next, if the debt ratio is over 10%, the blockchain will set its feed price higher and create less Steem on conversion. I gave a chart about these numbers here which will be a guide for "what the effective peg is" in the event that the debt ratio is that high.

In my opinion, this mechanism is very good in terms of stabilizing the situation when SHTF. So I actually think your hedge is smart in its intended goal to shelter the blow from the bear market.

But to address a specific point: there is no automatic conversion, it does it by adjusting the conversion rate.