No More Free Money In BOM and BOS

Deutsche Asset & Wealth Management changed the redemption size for their commodity ETNs from 200,000 to 5,000 on Friday.

The big redemption size made these busted ETNs because volume has been too thin to acquire in size. It would take an investor a long time to buy enough shares to force a redemption. On the other side, no one would go out and buy the underlying assets to swap them for an ETF trading at a 20-40% discount.

The funds were attractive to me because I wanted a short bet on industrial metals, willing to work to pick up a position slowly over time and didn't need a large position. The discount was gravy, and I assumed the herd would eventually come back and close the discount gap on top of gains from falling metals prices.

The result of Deutsche's decision was as follows on Monday:

As we can see, it was a smart move by Deutsche, especially with a breakdown in copper and other industrial metals becoming a real possibility. At the very least the change in policy should keep the discount smaller going forward, but volume could stay elevated in the coming days if metals break lower and ETP traders look for a suitable product.

I am still long both BOM and BOS.