Credit Suisse USOI ETN: The Crude Oil Income Play Walking a Volatility Tightrope

The commodity markets have long been a realm of extremes—volatile prices, geopolitical shocks, and unpredictable demand swings. For investors seeking exposure to crude oil without the full brunt of its price swings, structured products like the Credit Suisse X-Links Crude Oil Shares Covered Call ETN (USOI) promise a middle path: steady income generation through options strategies while theoretically cushioning downside risk. But does this ETN deliver on its dual mandate, or is it a precarious balancing act?

Let's dissect the mechanics and performance of USOI, an instrument designed to turn crude oil's volatility into an income stream—while keeping a wary eye on the risks.

The Covered Call Playbook: How USOI Generates Income

USOI's strategy hinges on a monthly covered call approach applied to the United States Oil Fund (USO), a popular ETF tracking West Texas Intermediate (WTI) crude. Here's how it works:
1. Long Position in Oil: The ETN maintains a notional long exposure to USO shares.
2. Short Call Options: Each month, it sells call options with a strike price 6% above the current oil price (106% out-of-the-money).
3. Premium Income: The premiums collected from selling these calls are distributed monthly to investors, forming the core of USOI's yield.

This structure aims to create a predictable income stream while capping the upside potential if oil prices surge beyond the strike price. The annual fee of 0.85% and transaction costs (~0.84%) eat into returns, but the ETN's appeal lies in its promise of smoothing out crude's inherent volatility.

Performance: A Rocky Road to Mixed Results

The numbers tell a story of fits and starts. Since its 2017 launch, USOI has delivered a cumulative return of -17.69% through July 2025. An initial $10,000 investment would now be worth just $8,231—a stark reminder that even structured products aren't immune to commodity market headwinds.

• 2023: +6.40% (recovery from prior lows)
• 2024: +14.90% (a standout year)
• 2025 (YTD): -4.98% (a stumble into 2025)

The exponential trendline paints an even bleaker picture, showing an average annualized return of -5.01% since 2017—a trendline with moderate reliability (R²=0.11) but enough to unsettle long-term holders.

The Double-Edged Sword: Risks Lurking in the Shadows

While the covered call strategy aims to mitigate downside, USOI's performance reveals vulnerabilities:
1. Extreme Drawdowns: The ETN suffered a catastrophic -77.42% drop in May 2020, mirroring oil's historic crash during the pandemic. Even now, the current drawdown stands at -46.10%, highlighting how commodity-linked products can amplify losses during crises.
2. Capped Upside: When oil rallies sharply (e.g., post-war supply disruptions), USOI's returns flatten above the 106% strike price, leaving investors on the sidelines as crude soars.
3. Credit Risk: As an ETN, USOI is an unsecured debt obligation of Credit Suisse—a critical consideration given the bank's recent financial struggles.

Is USOI Worth the Risk? A Pragmatic Take

For income-seeking investors willing to accept these risks, USOI offers a niche opportunity—but only in the right context:
- Income Priority: The monthly distributions, while variable, have historically averaged around 1.5%-2% of NAV per month. This can provide a hedge against cash drag in portfolios.
- Diversification: Crude oil often moves inversely to equities, making USOI a potential stabilizer in volatile markets—if managed carefully.
- Risk Mitigation: The covered call structure theoretically softens downside moves, though the 2020 crash shows this isn't a guarantee.

Investment Caution:
- Avoid Overallocating: Treat USOI as a small satellite holding, not a core position.
- Monitor Credit Risk: Credit Suisse's stability remains a wildcard; investors should assess their risk tolerance for counterparty exposure.
- Tax Considerations: Distributions are taxed as ordinary income, which may erode returns for high earners.

The Bottom Line: A Volatility Play, Not a Sure Bet

USOI is a textbook example of structured finance's promise—and its pitfalls. It offers a way to participate in crude oil's income potential while theoretically limiting downside, but investors must accept two uncomfortable truths:
1. Commodity Exposure Isn't Safe: Oil's price swings are too large to be fully insulated against.
2. Structured Products Have Hidden Costs: Fees, credit risk, and the ETN's tax treatment all chip away at returns.

For the right investor—a disciplined income-seeker with a small allocation to commodities—USOI might fit. But tread carefully: this tightrope walk between income and risk requires a clear-eyed understanding of what you're buying.

Past performance does not guarantee future results. Consult a financial advisor before making investment decisions.