Two weeks ago there was a colossal unwind of a DWTI (VelocityShares Daily 3x Inverse Crude ETN) long on 2/1/16 of $552M (reported by on 2/12).  This unwind reduced the fund size of DTWI by more than half.  Keep in mind that the fund is 3x Inverse Crude so an unwind is essentially covering a short position in Crude.   How does a broker hedge this kind of liquidation?  The broker hedges with the underlying basket of the ETF or ETN.  In this case it is futures contracts on WTI Crude.  According the manager of the ETN, VelocityShares, as of 2/13 the fund is 100% invested in April WTI Crude futures.

Outstanding shares of DWTI


Source: Bloomberg

A further colossal positioning in WTI Crude Leveraged ETN happened last week.  This time it was in the VelocityShares 3x Long Crude ETN, symbol UWTI.   UWTI added $492M in assets last week with the bulk of the investment occurring prior to the headline regarding UAE (United Arab Emirates) Oil Minister Suhail Al Mazrouei, who stated that, “producers are ready to work together and won’t make cuts unless there’s complete cooperation”, according to Sky News Arabia report that was posted online Feb. 10.  Note that since the fund seeks to replicate a 3x daily move in WTI Crude, this equates to roughly $1.5B in exposure to WTI Crude.  See chart below.

Outstanding shares of UWTI


Source: Bloomberg

Interesting the timing of this investment, which mostly took place prior to Friday’s 12.3% rise in WTI Mar Crude futures.  Considering the leverage in these types of ETNs, watching the volume and outstanding shares of DWTI and UWTI can provide clues on how a large fund may be positioning themselves for the next move in Crude.

-Christian Fromhertz, The Tribeca Trade Group