Credit Suisse Plans Covered-Call Gold ETN

By
Olly Ludwig
January 17, 2013
Share:

Related ETFs

Ticker Fund name
GLDSPDR Gold
Related ETF Lists
Gold ETFs

Credit Suisse serves up a covered-call riff on the physical gold market.

Credit Suisse, the bank that recently agreed to sell its European ETF operations to iShares, filed paperwork with regulators to market a gold-linked ETN that will feature long exposure to physical gold coupled with an overlay of call options, a so-called covered-call strategy that could milk extra returns out of a 12-year gold rally that may be growing long in the teeth.

It’s not clear when the Credit Suisse Gold Flows Index ETN will come to market, but prospectuses detailing exchange-traded notes typically surface just prior to the actual launch of a given security, and the regulatory paperwork suggests that ETN’s rollout could come as soon as the end of this month. The ETN will have its primary listing on the Nasdaq and GLDI will be its ticker, the prospectus said.

The ETN, which will come with an annual fee of 0.65 percent of assets, or $65 for each $10,000 invested, will have notional exposure to the bullion ETF SPDR Gold Shares (NYSEArca: GLD) while notionally selling monthly “out of the money” call options, according to the paperwork.

It’s anybody’s guess what the future holds given the lengthy aftermath to the market crash of 2008, but doubts in some corners of the financial market are beginning to surface about whether gold’s long run may be running its course. GLDI might be the perfect security for investors who are on the fence about that issue, as it represents a somewhat neutral view on gold.

Premiums on the notional sale of the call options will be received monthly, the company said. The ETN is designed to enhance current cash flow through those premiums in exchange for giving up any gains beyond 3 percent per month.

Apart from those premium payments softening the blow of a sell-off in GLD, nothing about the security is designed to provide downside protection.

The ETNs, which will mature on Feb. 2, 2033, are subject to early redemption or acceleration “in whole or in part at any time,” according to the prospectus.

They will have an initial “principal amount” of $20 per share.

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.

 

ETF DAILY DATA

The bond funds 'HYG,' 'TLT' and 'JNK' added money on Wednesday, March 25, as total U.S.-listed ETF assets dipped just below $2.1 trillion.

A number of iShares funds, including the bond funds 'TLT' and 'HYG' paced the firm's issuer-leading inflows on Wednesday, March 25. Total U.S.-listed ETF assets meanwhile dipped to just below $2.1 trillion.

ETF.COM ANALYST BLOGS

By Dave Nadig

How Ric Edelman is reinventing the ‘new economy’ investing paradigm.

By Olivier Ludwig

What’s cooler than an ETF with a ticker like ‘HACK’? The way investors are using it.

By Olivier Ludwig

Yes, 2015 is shaping up to be the ‘year of currency hedging,’ but that’s not necessarily a good thing.

By Elisabeth Kashner

ETF.com steps in to referee a catfight that has erupted in the world of robo advisors.