Thursday is the final trading day for two popular crude oil trading instruments: VelocityShares 3X Long Crude ETN linked to the S&P GSCI Crude Oil Index Excess Return UWTI and VelocityShares 3X Inverse Crude ETN linked to the S&P GSCI Crude Oil Index Excess Return DWTI. At the closing bell, Credit Suisse will no longer issue exchange-traded notes for the two ETNs, which will continue to trade on the OTC markets.
Credit Suisse hasn’t given an explanation for why the firm is choosing to discontinue the products, but the decision likely came about due to recent regulatory investigations into DWTI, UWTI and other leveraged trading products likely played a large role.
The DWTI and UWTI portfolios were comprised of options, swaps, short positions and other derivatives that targeted +/-3X exposure to oil prices. Unfortunately, due to their construction, both ETNs tended to underperform their targets over time. Since the beginning of 2013, WTI crude oil prices are down 44.5 percent. In that same time, UWTI was down 99.2 percent, while DWTI was up just 14.1 percent.
Never Meant To Be Long-Term Strategies
The ETNs were never designed to be held long term, and their holdings are structured to deliver levered returns on a one-day basis only. The contango associated with futures contracts and the time decay associated with options contracts severely eat into leveraged ETNs long-term performance. In addition, the ETNs had extremely high expense ratios in the 1.3 percent range, which also weighed on long-term returns.
Starting Friday
Once UWTI and DWTI are delisted following Thursday’s session, ETF.com warns that the two ETNs “will no longer have an active arbitrage mechanism to keep the price and net asset value aligned. That means traders should be…
Click here to continue reading
Want to learn more about how to profit off the stock market? Or maybe you just want to be able to look sophisticated in front of your coworkers when they ask you what you are reading on your Kindle, and you’d prefer to tell them “Oh, I’m just reading a book about stock market analysis,” rather than the usual “Oh, I’m just looking at pics of my ex-girlfriend on Facebook.” For these reasons and more, check out my book, Beating Wall Street with Common Sense. I don’t have a degree in finance; I have a degree in neuroscience. You don’t have to predict what stocks will do if you can predict what traders will do and be one step ahead of them. I made a 400% return in the stock market over five years using only basic principles of psychology and common sense. Beating Wall Street with Common Sense is now available on Amazon, and tradingcommonsense.com is always available on your local internet!
