There's definitely a lot of confusion over this. I was confused enough that I exited my position on the 24th for a loss just as a safeguard while I continued to look into this pup and read in more details parts of the prospectus I had skimmed before, and to crunch some numbers. Here's what I came up with:
MONTHLY reset. Both of "Current principal" and the index monthly initial level. Principal I won't get into, that makes more sense and is in the prospectus, and doesn't have the unique "disappearing act" risk the index level does. Both of the resets are talked about on page 2 of 161 in the PDF. The cruide oil index initial value is the last value for the previous month. If the index falls below 50% at ANY TIME DURING THE MONTH (pg 9, can secs be accel) this thing disappears completely.
Let me freak you out first by showing you the wrong way to look at this. Historical WTI spot prices from DoE. http://tonto.eia.doe.gov/dnav/pet/hist/rwtcd.htm That shows on 11/28 WTI was at 55.21, and on the 24th it was at 30.28. That's a 45.2% drop! Oil only has to fall a mere $2.67 to $27.61 for this thing to disappear!!!
Well, except that DXO's index ISN'T tracking CURRENT WTI sweet crude, it's tracking, according to that index URL, ".. the performance of WTI Sweet Light Crude Futures. DBLCI-OY indices are designed to maximize potential roll returns by selecting, for each commodity, the futures contract with the highest implied roll yield." According to PowerShares, this is the Jun 09 contract. I'm not a futures trader, so I couldn't tell you all the factors affecting futures price movement, but I do trade options and I do know that time value (affected by implied volatility) and time decay both play an important part in pricing, plus future expectations for the underlying.
If you do a custom range from 11/15/08 to 12/25/08 and download to excel (choosing wider date range because as you'll see there was no datum for 11/30, but on 11/28 there was something) you'll see the last day before 12/1 the index was at 3897.08. So, if the index dips to 1948.54 any time between now and Dec 31, hasta la pasta. On the 24th, the index was at 2799.96, which is 28.2% below the starting value. It needs to fall 30.4% from that current value to land at 1948.54, which is 50% of the original value.
That's a lot more breathing room, and should hopefully make a few of you fellas feel better. :-D
Switch gears, here's some fuzzy SoCo eggnog math I just pulled out of my ass correlating current WTI movement to index movement.
11/28 to 12/24: WTI Spot Price: 100*(1-(30.28/55.21)) = 45.2% drop DBLCI Index: 100*(1-(2799.96/3897.08)) = 28.2% drop Multiplier: .282/.452 = .6239 "Every 1% price movement of WTI spot price results in .6239% movement in index."
So, all else staying the same, using this TOTALLY ARBITRARY measure, what would a 50% index drop look like with WTI prices? 50% / .6239% = 80.14% = 19.86% remaining of initial. .1986 * $55.21 = $10.86
Of course, if prices dropped anywhere near those levels even intraday, I think it'd heavily influence future expectations, so again this isn't science so much as it is just another way of showing how much DXO _DOES NOT_ track daily oil movement in a linear fashion.
I'm contemplating re-opening a position with the prices low to recover previous losses, but I'm considering waiting until the month reset and also after the current principle amount is re-figured to account for the drops this month. Not sure yet. In the meantime.. DXO remains on the radar.
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