Defiance debuts income-enhanced oil ETF

May 22nd, 2024 | By | Category: Commodities

Defiance ETFs has introduced a novel options-based ETF that provides indirect exposure to changes in oil prices while also generating income.

Defiance debuts income-enhanced oil ETF

The ETF provides indirect exposure to oil prices while also generating income.

The Defiance Oil Enhanced Options Income ETF (USOY US) has been listed on NYSE with an expense ratio of 0.99%.

The actively managed fund generates income by regularly selling put options on the United States Oil Fund (USO US), the largest oil ETF in the United States.

USO invests predominantly in front-month futures contracts for West Texas Intermediate (WTI) crude oil that are traded on the NYMEX, although the fund may also allocate to other oil-related futures, forwards, and swap contracts.

USOY’s written put options will be priced either at-the-money or up to 5% in-the-money. By pricing some put options in-the-money, the strategy allows for potential upside appreciation if oil prices rise. In such a scenario, rising oil prices would decrease the intrinsic value of the in-the-money put options, thereby reducing the obligation to the put holder upon option expiration.

USOY will typically be profitable if USO’s share price increases, remains stable, or experiences a slight decline. However, if oil prices decrease significantly, the strategy is likely to incur a loss.

Commenting on the new listing, Sylvia Jablonski, CEO of Defiance ETFs, said: “With USOY, investors can access enhanced income potential in the oil market while maintaining exposure to USO’s share price movements. Considering the ongoing instability in the Middle East, Defiance believes there’s significant potential for oil prices to rally in 2024. USOY is strategically positioned to capitalize on this potential market movement, offering investors a unique opportunity to generate income while participating in the oil market’s growth.”

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