This Leveraged Oil ETN Could Have A Wild Monday

Already imperiled by slumping oil prices, the VelocityShares 3x Long Crude Oil ETN UWT is entering Monday in a precarious spot.

Oil Price War 

As of Sunday evening around 8:30 p.m. Eastern time, West Texas intermediate futures were lower by 21.22% after Russia and Saudi Arabia appeared to say they're willing to engage in a price war, with the latter confirming it will lower prices on exports to China while ratcheting up production, although prices are sinking.

UWT, which tracks the S&P GSCI Crude Oil Index, slumped 28.34% on more than five times the average daily volume Friday.

UWT's 'Automatic Acceleration' Clause

Monday should be an eventful day for an exchange-traded product such as UWT, but here's where things get really interesting.

“If the Intraday Indicative Value of any series of ETNs at any time during NYSE Arca trading hours and at or prior to the Settlement Time on any scheduled Index Business Day is less than 25% of the Closing Indicative Value of such ETNs on the immediately preceding Index Business Day (meaning that the Intraday Indicative Value has declined by more than 75% from the prior day’s Closing Indicative Value) (such event, a 'Trigger Event'), such series of ETNs will be automatically accelerated (an 'Automatic Acceleration') and the holders of such ETNs will receive a cash payment per ETN equal to the Automatic Acceleration Redemption Amount on the Automatic Acceleration Date,” according to UWT's prospectus.

The nugget is nestled on page seven in a section called “Automatic Acceleration.”

In plain English, there was some chatter on financial Twitter Sunday evening that if oil tumbles by a large enough percentage on Monday, UWT could provide investors with a sequel to the 2018 collapse of the VelocityShares Daily Inverse VIX Short Term ETN (XIV) amid a sudden spike in volatility.

What's Next For UWT 

At this point, it's speculation that UWT is heading toward a liquidation event on Monday or at any point soon. The ETN had nearly $479 million as of last Friday.

Last week, traders poured $23.21 million into UWT while yanking almost exactly the same amount from its bearish counterpart — the VelocityShares 3x Inverse Crude Oil ETN DWT.

As for the closing indicative value, it was $3.90 on March 6. That makes for a number worth monitoring Monday as it pertains to UWT.