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ETF News, Strike Price

Credit Suisse Lists Covered-Call Gold ETN; $GLDI w Exposure to $GLD

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indexuniverseCourtesy of Cinthia Murphy and Olly Ludwig

Credit Suisse on Tuesday launched its Credit Suisse Gold Shares Covered Call ETN (NasdaqGM: GLDI), a strategy that provides long exposure to physical gold coupled with an overlay of call options.

The ETN, comes with an annual expense ratio of 0.65 percent, will have notional exposure to the bullion ETF SPDR Gold Shares (NYSEArca: GLD) while notionally selling monthly “out of the money” call options, the fund’s prospectus said.

The strategy is designed to enhance current cash flow through premiums on the sale of the call options. Those premiums will be received monthly in exchange for giving up any gains beyond 3 percent a month. In other words, the premiums would soften the blow if GLD were to face a sell-off, but that’s the extent of the fund’s downside protection.

There’s still growing uncertainty in the market on whether the 12-year-long gold rally has run its course, which makes Credit Suisse’s launch of GLDI timely, as the ETN represents a somewhat neutral view on gold.

ETNs are senior unsecured obligations; in this case, of Credit Suisse’s Nassau branch. Unlike ETFs, they have no tracking error, but, also unlike ETFs, they represent a credit risk. For example, if Credit Suisse ever faced bankruptcy, holders of GLDI would likely lose their entire investment.

Strike Price

Sponsors Scout Buying Options within SMAs

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A little-used and relatively obscure investing strategy – buying options within a separately managed account – has made a bit of a stir in recent months, with a spike in product development talks between asset managers and platform sponsors, mostly for the strategy’s potential to address advisor and client concerns about market volatility.

The technique of using options in SMAs has been around for a while, primarily as a specialty aimed at generating returns through option-writing expertise, or to help clients with large concentrated positions hedge their portfolios. The new strain of product inquiries, however, is looking at how options might help advisors address a major concern of the last few years: lessening the shock and distress clients feel when the markets shimmy and shake in all directions.

“We’re seeing more demand in the last year or so, maybe even in a shorter timeframe,” says Patty Loepker, director of externally managed SMA and institutional products at Wells Fargo Advisors, who is chairing the Money Management Institute’s conference this week in Chicago. “More advisors are calling and asking for strategies, and we’re seeing more demand for managers that offer it.” Continue reading →