REX Shares has introduced a new ETF that combines exposure to crypto-related equities with a covered call strategy to generate additional income.
The ETF generates income through covered calls on crypto-related stocks.
The REX Crypto Equity Premium Income ETF (CEPI US) has been listed on Nasdaq with an expense ratio of 0.85%.
The ETF tracks the BITA Crypto Assets & Digital Payments Index, which consists of 25 US-listed companies involved in various segments of the crypto industry. These include crypto mining, trading, custody, blockchain technology development, and digital payment solutions.
The index selects the 20 best-ranked securities from the “Blockchain Technology,” “Crypto Asset Management and Trading,” “Crypto Banking, Payment and Services,” and “Crypto Mining” sub-themes, as well as the five best-ranked securities from the “Digital Payment Systems” sub-theme.
Constituents are weighted based on their 12-month trading volumes, with the 20 “Crypto Asset Leaders” collectively representing 80% of the index weight and the five “Digital Payments Leaders” comprising the remaining 20%. Individual stock weights are capped at 5%.
The index undergoes reconstitution and rebalancing each quarter.
To generate additional yield, CEPI employs a covered call strategy which consists of collecting premiums by selling call options on the same stocks within its portfolio.
This approach can enhance income, particularly in volatile sectors like crypto, where option premiums tend to be relatively high.
Historically, covered call strategies have performed well in bear markets, range-bound markets, and modest bull markets but may underperform during strong bull markets when stock prices frequently rise above the option strike prices.
CEPI’s covered calls are written opportunistically and are typically out-of-the-money, allowing the ETF to balance income generation with potential upside from price appreciation in the underlying equities. However, given the inherent volatility of the crypto sector, the strategy carries the risk of underperformance during a prolonged crypto bull run.
This ETF represents REX Shares’ third product in its covered call suite, following the $430 million FANG & Innovation Equity Premium Income ETF (FEPI US) and the $160 million REX AI Equity Premium Income ETF (AIPI US). FEPI focuses on leading US technology stocks, while AIPI targets equities aligned with the artificial intelligence theme. Both ETFs feature slightly lower expense ratios of 0.65%.
Greg King, CEO of REX Financial, commented: “Crypto is transforming financial ecosystems and creating unique investment opportunities. With CEPI, we’re applying our targeted covered call strategy to the sector’s most disruptive companies, creating new opportunities for income generation. We remain committed to building first-of-their-kind tools to help traders and investors harness opportunities in the market.”