Credit Suisse launches covered call ETNs tied to Crude Oil Flows 106

By Marisa Wong

Morgantown, W.Va., April 26 – Credit Suisse AG announced the launch of its X-Links Crude Oil Shares Covered Call exchange-traded notes linked to the performance of the price return version of the Credit Suisse Nasdaq WTI Crude Oil Flows 106 index.

According to a press release, the ETNs may pay a variable monthly coupon based on the notional option premiums, if any, generated by the index’s hypothetical monthly sale of call options on the shares of the U.S. Oil Fund, LP.

Credit Suisse said the index seeks to implement a “covered call” investment strategy by maintaining a notional long position in U.S. Oil Fund shares while notionally selling call options on that position on a monthly basis that are about 6% out-of-the-money.

The notional net premiums received, if any, for selling the calls are paid out at the end of each monthly period as a distribution. The index’s strategy is designed to generate monthly cash flow in exchange for giving up any gains beyond the 106 strike price.

The index’s strategy provides no protection from losses resulting from a decline in the value of the U.S. Oil shares beyond the notional call premium received, if any. The return on the ETNs will be based on the performance of the price return version of the index; therefore, each monthly distribution will be subtracted from a notional portfolio of the index, and the level of the price return version of the index will decrease with each such distribution.

The index, established on Sept. 26, 2016, is calculated by Nasdaq, Inc., and the levels for the price return version are disseminated real-time under the Bloomberg ticker symbol “QUSOI.”

“[The ETN] provides investors with an innovative investment proposition: the potential to earn variable monthly income from an investment linked to WTI crude oil,” Paul Somma, head of exchange-traded notes at Credit Suisse, said in the press release.

“[The ETN’s] performance relies on a covered call strategy on [U.S. Oil] shares that is designed to generate monthly income. Like [the Gold Shares Covered Call ETN and Silver Shares Covered Call ETN] before it, [the Crude Oil Shares Covered Call ETN] provides investors with a novel way to introduce monthly income into their portfolios in exchange for capping appreciation in the underlying ETF,” Somma said.

The new ETNs are listed on the Nasdaq under the ticker symbol “USOI” and are eligible to begin trading on Wednesday.

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