CS Covered-Call Silver ETN About To Launch


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Credit Suisse, the bank that recently agreed to sell its European ETF operations to iShares, filed paperwork with regulators to market a silver-linked ETN that will feature long exposure to physical silver coupled with an overlay of call options-a covered-call strategy that's quite similar to a covered-call gold ETN the bank launched in January.

The Credit Suisse Silver Shares Covered Call Exchange Traded Notes is expected to go live on the Nasdaq board Wednesday, under the ticker "SLVO," 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. That's the same price as the Credit Suisse Gold Shares Covered Call ETN (NasdaqGM:GLDI) that the company launched three months ago

SLVO will have notional exposure to the silver bullion iShares Silver Trust ETF (NYSEArca:SLV) while "notionally" selling monthly "out of the money" SLV call options, according to the paperwork. The gold-linked ETN "GLDI" also notionally sells out-of-the-money GLD calls options. It has gathered about $24 million since its rollout.

It's hardly clear how precious metals will perform going forward-particularly with gold dropping 14 percent below $1,400 a troy ounce in the past three sessions-but doubts are now in evidence that the rallying prices may be a thing of the past. Yet it is clear that SLVO and GLDI might be the perfect securities for investors 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 silver ETN is designed to enhance current cash flow through those premiums in exchange for giving up any gains beyond 6 percent per month. GLDI, the gold-linked ETN, uses a similar mechanism, but gives up gains beyond 6 percent per month.

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

The silver-linked ETNs, which will mature on April 21, 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, the same as GLDI.

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.

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This article appears in: Investing , ETFs
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