Wednesday, December 14

Today we saw a wider than expected range of securities fall in response to the Fed rate hike. The DJI and the NASDAQ fell 0.70% and 0.89% respectively during today’s trading session – in comparison our positions fell an average of 0.36%. Our deviation was due almost entirely to our high degree of exposure to the energy sector, most of which remained unaffected by the rate hike and instead responded to the continued rise in the price of oil. Our losses today were still far larger than anticipated, and we are examining closing positions in several of our more debt leveraged securities.

Also, today on the official delisting day for UWTI and DWTI we assembled a list of potential replacements for the lost ETNs.

The first has traditionally been comparatively small cap compared to UWTI – only 563 million to UWTI’s 1.63 billion. However, today’s volume was 45% above normal and it is likely that this will become the best candidate to replace UWTI. Unfortunately this issue does not come with an inverse pair like DWTI, but it is the best replacement for the strong exposure provided by 3x leverage.

There are also the iPath OIL ETN with daily volumes averaging around 3 million, but this is an un-leveraged ETN which cannot provide the high degree of exposure UWTI was able to. iPath has recently started advertising another ETN with the ticker OILK which has the same exposure, but claims not to require a K-1 form be filled out at the end of the year. Daily average volume for this issue is an illiquid 7,000 – barely worth looking at.

Now that UWTI and DWTI are gone it is likely that the best exposure to these commodities (short of the actual underlying futures contract) is going to be large to mid-cap oil producers and explorers. Of course it’s also worth mentioning that UWTI and DWTI are still trading for now on the OTC market as UWTIF and DWTIF – but with dramatically reduced volume and it is highly inadvisable to take any new positions.

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