Hope this may shed some additional light on DCR. From today's Seeking Alpha site --
Oil is trading up more than $3 today to $111.68. DCR is the MACROshares inverse oil note that trades on the AMEX. When oil goes up, DCR goes down. When oil goes down, DCR goes up. Today, however, DCR is down more than 26% even though oil is up just 3.12%. What gives?
When DCR began trading back in November 2006, oil was trading at around $60 per barrel. DCR trades along with UCR, which is the MACROshares oil up note. The net asset value [NAV] of UCR is the front-month oil contract price divided by three. The NAV of DCR is $40 minus the NAV of UCR.
The reason DCR is down so much today is because there is an early termination clause in the structure of the notes. If the front-month price of crude closes above $111 for three consecutive days, the termination clause takes place and the notes will stop trading at their NAVs on the 4th business day prior to the end of the quarter that the termination occurs. Shareholders will receive distribution on the 3rd business day following the end of the quarter.
Going into today, DCR was trading at just over $9 per share, but its NAV was $3.82. Remember, if oil closes above $111 for 3 consecutive days, the termination clause goes into affect and the shares are redeemable at NAV at the end of the quarter. As oil trades above $111, the share price has moved lower and lower. This trend should only accelerate as oil stays above $111. Currently, DCR is down 26.33% to $6.76.
We sent our Premium subscribers a B.I.G. Tips report on this earlier today when oil was trading near $109, but there hasn't been much mention of this in the financial world. It should garner more attention if the potential termination trigger becomes a reality.
The termination clause is mentioned many times in the prospectus for DCR, and MACROshares explicitly points out the risks involved in investing in the notes. This should still remind investors to make sure they know exactly what they're investing in before they put money to work.
Thanks for that explanation. Bad on me for not exploring more before I jumped.
The termination clause is oil closing at 111 or above? Did we hit that today? IOW, are we 2 or 3 days away from the termination?
So what we are seeing with this is the premium that DCR is selling for going away as more and more people get bullish on oil in the futures market. Might be a great buy at 4$ as your downside is only 67cents...but not where I was buying at 9$.
Coinlieutenant,as Joe said we did not close above $111 today. From what I understand, if the termination clause is triggered, shareholders will receive NAV of their shares valued at the end of the quarter. Its unclear to me whether the quarter ends at the end of April, I have read that in a few places, or at the usual quarter end at the end of June. Thus, if oil closes the quarter, whenever that is, at $90 the NAV will be higher, but if oil closes above $120 the NAV may be $0.00. Again, I am simply trying to assist based on what I have picked up over the internet since my post a week ago. I have not read the prospectus and am only try to give information as best as I have been able to interpret it. For everyone's sake lets hope oil gets taken down a few dollars before its next rise. The only problem seems to me that were on borrowed time.
3 comments:
Hope this may shed some additional light on DCR. From today's Seeking Alpha site --
Oil is trading up more than $3 today to $111.68. DCR is the MACROshares inverse oil note that trades on the AMEX. When oil goes up, DCR goes down. When oil goes down, DCR goes up. Today, however, DCR is down more than 26% even though oil is up just 3.12%. What gives?
When DCR began trading back in November 2006, oil was trading at around $60 per barrel. DCR trades along with UCR, which is the MACROshares oil up note. The net asset value [NAV] of UCR is the front-month oil contract price divided by three. The NAV of DCR is $40 minus the NAV of UCR.
The reason DCR is down so much today is because there is an early termination clause in the structure of the notes. If the front-month price of crude closes above $111 for three consecutive days, the termination clause takes place and the notes will stop trading at their NAVs on the 4th business day prior to the end of the quarter that the termination occurs. Shareholders will receive distribution on the 3rd business day following the end of the quarter.
Going into today, DCR was trading at just over $9 per share, but its NAV was $3.82. Remember, if oil closes above $111 for 3 consecutive days, the termination clause goes into affect and the shares are redeemable at NAV at the end of the quarter. As oil trades above $111, the share price has moved lower and lower. This trend should only accelerate as oil stays above $111. Currently, DCR is down 26.33% to $6.76.
We sent our Premium subscribers a B.I.G. Tips report on this earlier today when oil was trading near $109, but there hasn't been much mention of this in the financial world. It should garner more attention if the potential termination trigger becomes a reality.
The termination clause is mentioned many times in the prospectus for DCR, and MACROshares explicitly points out the risks involved in investing in the notes. This should still remind investors to make sure they know exactly what they're investing in before they put money to work.
CK,
Thanks for that explanation. Bad on me for not exploring more before I jumped.
The termination clause is oil closing at 111 or above? Did we hit that today? IOW, are we 2 or 3 days away from the termination?
So what we are seeing with this is the premium that DCR is selling for going away as more and more people get bullish on oil in the futures market. Might be a great buy at 4$ as your downside is only 67cents...but not where I was buying at 9$.
Coinlieutenant,as Joe said we did not close above $111 today. From what I understand, if the termination clause is triggered, shareholders will receive NAV of their shares valued at the end of the quarter. Its unclear to me whether the quarter ends at the end of April, I have read that in a few places, or at the usual quarter end at the end of June. Thus, if oil closes the quarter, whenever that is, at $90 the NAV will be higher, but if oil closes above $120 the NAV may be $0.00. Again, I am simply trying to assist based on what I have picked up over the internet since my post a week ago. I have not read the prospectus and am only try to give information as best as I have been able to interpret it. For everyone's sake lets hope oil gets taken down a few dollars before its next rise. The only problem seems to me that were on borrowed time.
GL/GT
CK
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