That exchange-traded note was designed to synthesize a long position in the SPDR Gold Trust (GLD). It also synthesizes the sale of calls each month that are 3% out of the money.
The objective of GLDI is to provide investors with exposure to gold along with the opportunity to receive monthly income -- in the form of dividend from the payment of the notional call premium. Investors will enjoy monthly gains in the precious metal of up to 3%.
The months since GLDI's debut have been rough for gold as GLD has gone down 15%. Over the same period, GLDI has declined 15.30% on a price basis but has paid out three dividends totaling 31 cents, reducing the decline by 1.8 percentage points on a total return basis. That means the ETN has outperformed the related ETF slightly. Three months is a small sample size, but it is enough time for GLDI to show any gross flaws.
The reason to revisit GLDI is because of the recently launched Silver Shares Covered Call ETN (SLVO). The strategy is essentially the same, but the silver ETN is tied to the iShares Silver Trust (SLV). The big difference between the ETNs is that instead of writing calls every month that are 3% out of the money, SLVO will notionally sell calls every month that are 6% out of the money. The reason for this difference is that silver is more volatile than gold, so Credit Suisse believes note holders will benefit from being able to capture more of any potential monthly move higher.
The other nuts and bolts of SLVO are the same as GLDI's. That means it notionally sells calls over a five-day period beginning 40 days before the options expire, holds the cash received, then buys the call options back over a five-day period starting nine days before expiration. Then it pays out the net cash from the option sale seven days after the closed-out option position expires. SLVO will charge a 0.65% expense ratio. It's important to understand that this ETN won't participate in any monthly gain for SLV beyond 6%.
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