With plain vanilla equities increasingly shunned by most retail investors for various reasons, an interesting transition was observed in the past year: Mom and Millannial traders have became "the new oil traders." The WSJ even had an article profiling this astounding shift in May.
For some individual investors, crude is the new hot trade. Oil in the U.S. fell to its lowest level since 2003 in February but has surged roughly 90% since then. On Thursday, it traded above $50 a barrel for the first time since October, before easing Friday. That compares with a stock market that has offered nowhere near that momentum.“
I just thought, let’s throw a couple of hundred dollars in it...and try it out,” said Matt Krasnoff, 26, of New York, who bought shares of UWTI last year after hearing about it from a friend. “I just enjoy the risk and the thrill of the market in general.”
Call them America's Mrs. Watanabes: bored, amateur commodity traders who look at momentum, and bet on a direction: in a world with countless ETFs and ETNs, all of which are accessible on their iPhones, it's literally just pushing a button. Of course, it's their right to lose their money as they see fit, however the real news was the article's focus on the products there amateur traders use to bet on whether oil would go up or down:
“The swings are gigantic lately,” she said of the product, known by its ticker UWTI, and the other energy products she has traded in recent months.
Total assets in the 15 U.S. exchange-traded products that track crude, including UWTI, hit a record $8.5 billion in early March and had nearly $8 billion Wednesday, according to Bianco Research LLC, which specializes in investment analysis. That figure doesn’t distinguish between retail and institutional investors, which also have a large presence in the market.
Brokerages are keen to make sure that if traders lose money in these products, which can happen quickly, they are aware of that possibility. Some have spilled hundreds of words detailing the inner workings and risks of such products, which are prone to large daily percentage moves, even into the double digits.
Frederick Bailey, 59, of Savannah, Ga., said he put a modest amount of money in UWTI in January as crude broke below $30 a barrel and rode it higher as oil prices rebounded. Mr. Bailey, who said he is between jobs, once worked at banks that dealt with exchange-traded funds.
So, in light of the ongoing retail fascination with trading the volatility in oil, one would think that this very moment is nothing short of a golden age for oil-related ETFs and ETNs. However, an announcement by Credit Suisse released overnight suggests that not all may be well behind the scenes.
In a press release by the Swiss bank, Credit Suisse reported that "as part of its continuing effort to monitor and manage its suite of exchange traded notes, Credit Suisse AG has decided to delist" two of the most popular 3x levered oil ETNs, DWTI and UWTI, "with a view to better aligning its product suite with its broader strategic growth plans."
"Accordingly, Credit Suisse AG anticipates that the ETNs will continue to trade on NYSE Arca up to and including December 8, 2016 and that effective December 9, 2016, the ETNs will no longer be listed for trading on any national securities exchange. In addition, Credit Suisse AG will suspend further issuances of these ETNs effective December 9, 2016."
These are sizable ETNs, with the 3x Long Crude UWTI having $1.2Bn in AUM, while the 3x inverse sporting a respectable $387MM in assets: these are not unpopular products which are fading out due to lack of interest. By contrast, when the TVIX announced it would halt creations, a move that was prominently covered in the financial press, its assets and vol were roughly half of where UWTI is now.
The suspension is likely due to rising pressure from the SEC to limit high-leverage trading activity in the marketplace, however that is merely speculation. If confirmed, expect many more levered oil (and not only) ETFs to bite the dust soon.
Also notable is that while CS would suspent further issuance, it would not redeem the actual product, meaning it would remain freely tradable in perpetuity, over on the pink sheets where discarded financial products go to die a slow death.
Following their delisting, the ETNs will remain outstanding, though they will no longer trade on any national securities exchange. The ETNs may trade, if at all, on an over-the-counter basis. Although it is not currently accelerating the ETNs at its option, Credit Suisse AG continues to have the right to do so, as described in the pricing supplement for the ETNs (the "Pricing Supplement"), and may choose to accelerate the ETNs at its option in the future, either together on the same date or each on a separate date, including shortly after the delisting. Subject to the minimum redemption amount and other conditions, investors can continue to exercise their early redemption right with respect to the ETNs prior to, and following, the ETNs' delisting, pursuant to the terms of the ETNs as described in the Pricing Supplement. If investors wish to exercise their early redemption right, they and their broker must follow the procedures set forth in the Pricing Supplement, which can be accessed on the Securities and Exchange Commission website at www.sec.gov as follows:
To anyone who is currently invested in these ETNs, the choice is clear: unwind the position and/or redeem exposure before December 8.
The worst news, if other oil ETFs also pull the plug, is that America's "Mom and Millannial" trading gurus will no longer be able to waste time (and money) daytrading oil with 2x-3x leverage, and may have to find productive ways in which to spend their time.