It is an exchange-traded note (ETN) that tracks an index applying a covered call strategy to an oil ETF. It provides exposure to oil prices while selling call options to pursue high distribution income.

It suits risk-tolerant investors who want high distributions from an oil covered call strategy and are willing to accept oil price volatility and the credit risk of the ETN issuer.

It is a passive (index-tracking) product managed by UBS.

This ETN tracks a covered call index that sells call options on oil ETF shares, collecting option premiums to pursue high distributions. When oil rises, the cap limits participation in the upside, and when oil falls, it is exposed to losses. Unlike an ETF, where the fund holds the assets, its value is determined by the issuer's debt obligation.

• Covered call strategy applied to an oil ETF
• ETN structure based on issuer debt

Assets under management (AUM) stand at $299.0M, and the total expense ratio is 0.85% per year.

The main points of comparison are the ETN structure, which depends on issuer credit, and the covered call strategy, versus oil ETFs that hold assets directly.

An oil covered call strategy is driven by the direction and volatility of oil prices. When oil moves sideways, option premiums generate high distributions, but a sharp rally limits participation because of the cap, and a sharp drop exposes the product to losses. Oil price volatility affects the level of distributions.

Fund flows into oil covered call products diverge depending on oil price trends and demand for high distribution income, and demand attracted by high distribution rates sometimes shifts money into related products. It is also worth noting that distributions and prices can vary widely depending on oil prices and the options environment.

High distributions are both its strength and its risk, and issuer credit risk, capped upside, and oil price volatility are the factors to consider.

For another oil options income product, USOY is a direct substitute, and for direct exposure to oil prices, products such as USO are also worth comparing. For exposure to Brent crude, products such as BNO can also be considered. The three products shown in the table, USOY, USO, and BNO, differ in strategy and structure, offering options income and direct exposure to oil and Brent crude respectively, while this ETF is differentiated by its oil covered call ETN structure based on issuer debt.

Here are the points to review before investing in USOI. High distributions are attractive, but issuer credit risk, capped upside, and oil price volatility should be checked in advance. It is also a good idea to compare it with oil ETFs that hold assets directly.

Price declines from falling oil prices, issuer credit risk, and capped upside during rallies are the main variables for performance. An ETN does not hold assets and relies on the issuer's debt obligation, so there is a risk of principal loss if the issuer defaults. A high distribution rate does not necessarily mean a high total return.

It is a suitable candidate for risk-tolerant investors seeking high distributions from an oil covered call strategy. For direct exposure to oil prices, consider products such as USO and BNO, and for exposure to an oil covered call ETN, it is advisable to choose this product after understanding the issuer credit risk.