"USOI harvests the anxiety premium embedded in options prices, holding a notional long position in United States Oil Fund and selling monthly call options roughly 6% out-of-the-money against that position."
"When crude is volatile, options traders pay more for protection, inflating the premiums USOI collects, with WTI crude swinging from roughly $60 per barrel to over $95 per barrel."
"The 6% monthly cap means that when USO surged 99% over the past year, USOI captured only 37% in price terms, leading to a significant gap in returns."
USOI, an ETN, harvests the anxiety premium from options prices rather than tracking crude oil directly. It holds a long position in USO and sells monthly call options about 6% out-of-the-money. The fund benefits from increased premiums during oil volatility, with a distribution yield around 21%. However, when oil prices surge, USOI's returns lag behind direct investments in oil, capturing only a fraction of the gains. The expense ratio is 0.85%, and the strategy's limitations become evident during strong oil rallies.
Read at 24/7 Wall St.
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