Premium and Discount to NAV
The gap between what a listed product's shares trade at and the value of what it holds, expressed as a percentage.
Small gaps are normal and reflect the cost and timing of arbitrage, exchange trading hours that do not match a market open all night, and short-lived imbalances in demand for shares. Large and persistent gaps almost always mean the creation and redemption mechanism is impaired or absent, because without a way to convert shares back into assets nothing forces the two together. The clearest historical case is a trust that issued shares but could not redeem them, whose shares traded at a wide and lasting discount to the value of the bitcoin it held until a redemption mechanism existed. The same arithmetic is applied to listed companies holding digital assets, where the ratio of share price to holdings per share is sometimes called mNAV, but there the gap can persist indefinitely because no redemption right exists at all.
En pratique
Closed vehicles with no redemption route have historically traded at large discounts to their holdings, while newly launched products with working creation and redemption typically track within a fraction of a percent.
Le malentendu courant
That a discount is automatically a mispricing waiting to close, when a discount can persist for years if there is no mechanism to convert shares back into the underlying assets.