After U.S. President Donald Trump's speech quickly weakened expectations for an end to the Middle East war and sent international oil prices surging, the premium/discount rates of exchange-traded note (ETN) products that track crude oil futures as underlying assets widened to more than 10%.
The premium/discount rate refers to the gap between a product's actual value and its indicative value (IV). When the premium/discount widens, it means the product is trading cheaper or more expensive than its actual value. Generally, even when it exceeds ±1%, the product price is considered to be failing to properly reflect the value of the underlying asset.
According to the Korea Exchange (KRX) on the 6th, the average swing in the premium/discount rates on the previous day (the 2nd) for the top 10 crude oil ETN products by transaction value over the past week (Mar. 25 to Apr. 2) was about 14 percentage points (p). More than half of these ETNs saw swings exceeding 10 percentage points.
This is seen as the result of international oil prices jumping after the president's remarks heightened concerns that the war will be prolonged. After Trump said, "We will continue extremely powerful strikes on Iran over the next two to three weeks," international oil prices soared to $111 per Barrel, rising more than 11%.
In particular, the premium/discount rates of crude oil inverse ETNs that bet on falling oil prices mostly flipped sharply from positive (+) to negative (-). This means the market prices of the ETNs are being sold cheaper than their NAVs, and as oil prices spiked, selling concentrated in inverse products that invest in a decline in oil prices.
Among them, the product with the biggest swing in the premium/discount rate was "Mirae Asset Inverse 2X Crude Oil Futures Mixed ETN (H)," which fell 17.98 percentage points in a day, from 5.35% to -12.63%. The premium/discount rate of "Shinhan Bloomberg Inverse 2X WTI Crude Oil Futures ETN B" also swung sharply by 17.24 percentage points, from 6.22% on the 1st to -11.02% the previous day.
Conversely, the premium/discount rates of leveraged products that track rising oil prices turned sharply positive (+). The premium/discount rate of "Samsung Leveraged WTI Crude Oil Futures ETN," which had the highest transaction value over the past week, surged 16.06 percentage points, from -3.95% on the 1st to 12.11% the previous day.
Among the top 10 products by transaction value the previous day, only one item, "Meritz Inverse 2X Crude Oil Futures Mixed ETN (H)," had a premium/discount rate within ±1%.
Experts cite crude oil's inherently high volatility and the time gap between commodity futures markets and the domestic stock market as reasons for the wider premium/discount rates in crude oil ETNs.
Park U-yeol, a senior researcher at Shinhan Investment & Securities, said, "For crude oil futures products, the commodity market opens and closes at different times from Korea's trading hours, making it hard to track precisely," adding, "Crude oil itself is so volatile, with underlying asset prices rising and falling by more than 30%, that large premium/discounts occur."
Some also say expanding liquidity providers (LPs) is necessary to reduce premium/discount rates.
Park said, "The larger a product's market capitalization and liquidity, the easier it is to keep the premium/discount in line, but crude oil ETNs have small market caps and suddenly drew attention because of the Iran war, so the premium/discount widened rapidly," adding, "To narrow it, there need to be more liquidity providers for the products."