Credit Suisse Launches Gold-Backed ETN

Terry Flanagan

Credit Suisse this week launched a covered-call gold exchange-traded note on the Nasdaq.

Called a Gold Shares Covered Call ETN and listed under the ticker symbol ‘GLDI’, it is the first exchange-traded product in the U.S. market to offer investors access to a covered-call strategy on a gold investment and is designed to pay variable monthly coupons.

“Gold is very topical, and people are looking for different ways to hold exposure in gold,” said Greg King, head of exchange-traded products at Credit Suisse’s investment bank. “Covered call strategies are a method of creating potential yield.”

With GLDI, Credit Suisse’s objective is to “develop a systematic approach to a covered call strategy in gold”, King said. “This is a first for the marketplace because of the unique exposure that GLDI delivers,” he added.

ETNs are senior, unsecured and unsubordinated debt securities designed to track the return of a specific market index less applicable fees. ETNs have provided access to hard-to-reach exposures, such as commodity futures.

GLDI, which tracks the Credit Suisse Nasdaq Gold Flows (Formula-Linked OverWrite Strategy) 103 Index, seeks to implement a rolling ‘covered-call’ investment strategy by maintaining a notional long position in shares of the SPDR Gold Trust ETF (GLD) while notionally selling monthly 3% out-of-the-money call options on that position.

Because the calls are sold slightly out of the money, they provide call buyers with an opportunity to profit should the price of gold rise.

Credit Suisse partnered with Nasdaq OMX in creating the Flows suite of indices that the ETN tracks. “Based on uncertainty in the global marketplace, investors continue to look for access to gold and income,” said Robert Hughes, vice-president at Nasdaq OMX Global Indexes, in a statement. “GLDI provides access to these two key investment themes in a transparent rules-based methodology.”

GLDI is designed for investors and their investment advisors, who are seeking an alternative means of adding gold to their portfolios.

Because it implements a covered-call strategy, GLDI’s returns consist entirely of the net cash premiums from selling the calls, paid out as a monthly distribution.

The strategy is designed to generate monthly cash flow in exchange for giving up any gains beyond the strike price.

The strategy provides no protection from losses resulting from a decline in the price of GLD shares beyond the call premium.

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