In BITA’s case, if bitcoin rises, the ETF benefits from its IBIT holdings, but gains are limited by having to cash out on the calls. If BTC holds steady or declines, the call writing premium offsets some of the decline. In effect, investors are giving up potential gains for a more stable income stream.
“By implementing a cover-call strategy on its Bitcoin-linked exposure, the fund seeks to convert Bitcoin’s historically high volatility into a recurring income stream with a target of +15% annualized returns while maintaining around 70% participation in its underlying capital appreciation potential,” Tagus Capital said in an email.
The strategy can also affect the wider market, which is affected by the balance between supply and demand. Selling call options systematically or overwriting suppresses bitcoin’s implied volatility. Bitcoin’s 30-day implied volatility has declined since 2022, and call overwriting is a major reason. (Check daily signal below)
Now BlackRock is institutionalizing it on a large scale. More systematic selling of options means more premium supply hitting the market and more downward pressure on volatility.
Bitcoin, already less wild than it used to be, is getting a little tamer still.
As for price action, bitcoin’s recent rally to over $66,000 from below $59,000 still lacks institutional support. The US-listed spot ETFs recorded outflows of $64 million on Monday, bringing the month’s withdrawals to $2.10 billion.
