UBS ETRACS Crude Oil Covered Call ETN (USOI) yields 21.08% by writing covered calls on United States Oil Fund (USO) positions, but this strategy caps upside gains during volatile oil markets; UBS has taken on heightened credit risk after its Credit Suisse acquisition, expanding its balance sheet to $1.7 trillion—nearly double Switzerland’s GDP.
Oil market volatility from the Iran War and US blockade of the Strait of Hormuz creates attractive trading conditions, but once hostilities end and the strait reopens, oil prices will stabilize and covered call dividends will shrink proportionally.
The analyst who called NVIDIA in 2010 just named his top 10 AI stocks. Get them here FREE.
In just a few weeks, the Iran War has triggered enormous volatility into the oil markets. With oil futures prices ranging this year between the mid $50s per barrel to over $112, the intraday volatility has made futures trading a very attractive proposition. The current US blockade of the Strait of Hormuz to compel Iran to give up its means to create nuclear weapons is preventing any exports of Iranian Oil.
The UBS ETRACS Crude Oil Covered Call ETN (NASDAQ: USOI) is an Exchange Traded Note issued by UBS. It’s delivering a 21.08% yield at the time of this writing, but it’s often mistaken for an ETF, and that’s where the distinction can become problematic for some.
USOI yields are derived from covered calls written against USO and its portfolio of crude oil, natural gas, gasoline, and other hydrocarbon futures holdings.
The analyst who called NVIDIA in 2010 just named his top 10 stocks. Get them here FREE.
USOI is an ETN issued out of the UBS AG London Branch. It is a note issued in April, 2017 that is set to mature in April 2037. Its portfolio holds shares in United States Oil Fund, LP (NYSE: USO), which invests in futures contracts of crude oil, natural gas, gasoline, and other hydrocarbons. USOI owns shares of USO and generates its 21.08% yield via writing covered calls against its USO positions. An overview of USOI is below:
Net Assets | $325.68 million | 52-wk Range | $45.83-$60.67 |
Yield | 21.08% | NAV | $57.40 |
Daily Avg. Volume | 146,906 shares | 1-Year Return | 32.90% |
Expense Ratio | 0.85% | 3-Year Return | 11.67% |
Payouts | Monthly | 5-Year Return | 15.95% |
While the monthly payout of 21% APY is very attractive to income investors, the covered call strategy caps monthly upside potential. This will result in USOI lagging behind USO, which will more fully realize gains from escalating oil prices. Conversely, once the Iran War hostilities have ended and the Strait of Hormuz is reopened, the price of oil will once again trade in a narrow range. This means that volatile will shrink, and the dividends from the covered calls will diminish proportionately.
