There was a time when the intersection of bitcoin and income meant selling the former to get the latter. The always inventive ETF industry changed that scenario for the better.
Thanks to ETFs such as the NEOS Bitcoin High Income ETF (BTCI ), investors can access the alluring combination of exposure to some of the largest cryptocurrency’s upside as well as high levels of income. So perhaps it’s not surprising that BTCI is already a $1.13 billion fund, six months shy of its second birthday.
“It’s (BTCI) been exciting for us because we talked to a lot of advisors all the time, and a lot of them didn’t know when or how to get into bitcoin,” said NEOS co-founder Troy Cates on a recent episode of the ETF Prime Podcast. “They had more and more clients saying, you need to have bitcoin exposure, you need to have bitcoin exposure.”
BTCI Capitalizes on Bitcoin Volatility
Across its ETF suite, NEOS has proven adept at delivering sizable income to investors without subjecting them to substantial net asset value (NAV) erosion. The secret sauce is derived from the firm’s thoughtful options-selling strategy, which serves as the bedrock for BTCI.
With BTCI, NEOS is selling options on two well-known traditional bitcoin ETFs. That strategy can work in favor of income investors, because bitcoin is a notoriously volatile asset. That means that options premiums on those plain vanilla ETFs are often higher than what investors find on standard equity indexes.
“As you can imagine, volatility in bitcoin is greater than the S&P and Nasdaq,” Cates noted on ETF Prime. “So you’re going to bring in a lot more premium while still writing further out of the money and on less notional. So if, on an average month, we’re writing on half of the notional and, you know, if the S&P were writing 2% to 4% out of the money in bitcoin, we could be writing 10% to 20% out of the money.”
That approach is pertinent to investors. It implies that BTCI has a wide berth through which end users can participate in bitcoin upside. That’s a perk of a rules-based strategy, as is the fact that BTCI is an efficient tool for participating in that strategy, eliminating the need for investors to attempt it on their own.
“We should capture a good portion of that upside, because of how far out of the money we write those calls and on how little of the notional we do on a monthly basis. So it’s important to understand that dynamic and how our rules based strategy works,” concluded Cates.
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