YieldMax adds bitcoin covered call ETF

May 1st, 2024 | By | Category: Alternatives / Multi-Asset

YieldMax has expanded its line-up of income-enhanced ETFs with a new fund delivering access to a synthetic covered call strategy on bitcoin.

YieldMax adds bitcoin covered call ETF

The ETF offers regular income combined with exposure to bitcoin (up to a cap).

The YieldMax Bitcoin Option Income Strategy ETF (YBIT US) has been listed on NYSE Arca with an expense ratio of 0.99%.

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. YBIT aims to address this gap, offering investors regular income with exposure to bitcoin (up to a cap).

The fund is actively managed and sub-advised by ZEGA Financial, an SEC-registered investment adviser and manager specializing in derivatives-based investing.

Zega employs a combination of long call and long put options on US-listed spot bitcoin ETFs to achieve a 100% long exposure to bitcoin. The primary criterion for selecting the underlying spot bitcoin ETFs is their ability to demonstrate sufficient option liquidity to facilitate YBIT’s trading activities. YBIT does not invest directly in bitcoin or any spot bitcoin ETF.

Zega then employs a covered call strategy by selling or “writing” one-month call options on the same underlying spot bitcoin ETFs. This approach effectively generates income (the income from the written call options’ premiums) from bitcoin.

Bitcoin has historically exhibited notable 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.

YBIT’s monthly call options are written with strike prices between 5% and 15% above bitcoin’s current price, enabling investors to maintain some upside exposure to bitcoin.

Historically, during bear markets, range-bound markets, and modest bull markets, covered call strategies have generally outperformed their underlying asset. However, during strong bull markets, when the underlying asset may frequently rise through its strike price, covered call strategies historically have tended to lag.

While covered call strategies do limit upside participation, they can generate steady income during turbulent periods and diversify an investor’s sources of yield away from equities and bonds.

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