Roundhill Investments has unveiled the first ETF in the US to deliver a covered call strategy on Bitcoin.
The ETF offers regular income combined with exposure to Bitcoin (up to a cap).
The Roundhill Bitcoin Covered Call Strategy ETF (YBTC US) has been listed on Cboe BZX Exchange with an expense ratio of 0.95%.
A covered call is an options strategy whereby an investor holds a long position in an asset and sells or “writes” call options on that same asset in an attempt to generate more income (the additional income from option premium) than the asset would otherwise provide on its own from dividends or other distributions.
As Bitcoin is a non-yielding asset, income-focused crypto investors have traditionally turned to on-chain strategies such as staking for proof-of-stake digital assets like Ether. YBTC aims to address this gap, offering investors regular income with exposure to Bitcoin (up to a cap).
In terms of the implementation of YBTC’s strategy, the fund does not invest in Bitcoin directly but rather gains ‘synthetic’ long exposure to the cryptocurrency by purchasing call options and selling put options referenced to ETFs that invest in Bitcoin futures. These call and put options are typically struck ‘at-the-money’.
YBTC then opportunistically sells out-the-money call options referenced to the same Bitcoin futures ETFs. These written call options serve to generate regular income with YTBC paying distributions to investors every month.
Bitcoin has historically exhibited significant price volatility, a feature that tends to drive up option premiums, highlighting the significant income-generating potential of a covered call strategy based on the cryptocurrency.
Dave Mazza, Chief Strategy Officer at Roundhill Investments, commented: “YBTC offers investors an attractive blend of high-income potential and exposure to Bitcoin. Investors have clamoured for a covered call ETF with exposure to Bitcoin, and we are proud to be the first to bring such a product to the US market.”
While the ETF is likely to outperform a straight 100% long exposure to Bitcoin during bear markets, range-bound markets, and modest bull markets, covered call strategies tend to underperform during strong bull markets when the underlying asset frequently rises through the strike price of the written call options.