Credit Suisse, the underwriting bank for a suite of X-Links exchange traded notes, has expanded its line of covered-call offerings with a crude oil-related option.
The bank has rolled out the Credit Suisse X-Links Crude Oil Shares Covered Call ETN (NasdaqGM: USOI). USOI comes with a 0.85% expense ratio.
USOI tries to reflect the performance of the Credit Suisse Nasdaq WTI Crude Oil FLOWS 106 Index, which tracks the return of a “covered call” strategy on the shares of United States Oil Fund (NYSEArca: USO) by reflecting the price changes of the shares and the option premiums received from the sale of monthly call options on USO shares.
Covered-call, or buywrite, options allow an investor to hold a long position in an asset while simultaneously writing, or selling, call options on the same asset. Traders would typically employ a covered-call strategy when they have a neutral view of the markets over the short-term and just gather income from the option premium. While these buy-write ETFs may not produce any phenomenal price returns compared to the broader equities markets, their underlying option strategy helped them generate outsized yields.
For instance, USOI’s underlying index shows a yield of 16.25%. The ETN may provide a variable monthly coupon based on the option premiums generated.
Credit Suisse also offers two other ETNs with similar strategies based on gold and silver. The Credit Suisse X-Links Silver Shares Covered Call ETN (NasdaqGM: SLVO) targets the iShares Silver Trust (NYSEArca: SLV), and the Credit Suisse X-Links Gold Shares Covered Call ETN (NasdaqGM: GLDI) targets the SPDR Gold Shares (NYSEArca: GLD). SLVO shows a 15.52% 12-month yield and GLDI has a 13.39% 12-month yield.
Potential investors should keep in mind that ETNs are not exchange traded funds. Unlike ETFs, ETNs are debt securities issued by financial institutions that promise to pay the return of an index, minus fees and taxes. Therefore, investors are exposed to the credit risk or the possibility the underwriting bank goes bankrupt. The note can be vulnerable if the issuer gets into financial trouble, otherwise known as a default. With an ETN, an investor can lose some or all of their investment if the ETN issuer goes under.
For more information on new fund products, visit our new ETFs category.