My investment focus has centered on income stocks and ETFs. Since Bitcoin doesn’t pay dividends, I hadn’t had much interest besides keeping up with the news. The explosion in the issuance of new options strategy ETFs provides new ways to invest in existing asset categories.
Three covered call ETFs currently use Bitcoin as the portfolio asset. Each approaches the covered call strategy differently, providing a variety of strategies for investors to choose from. Let’s look at the three ETFs, going from the oldest to the newest.
The Simplify Bitcoin Strategy PLUS Income ETF (MAXI) has been available to investors for almost two years (since its September 2022 launch). The fund targets 100% exposure to Bitcoin by investing in front-month futures contracts. The fund writes short-dated options spreads on various equity and fixed-income investments to generate income. Note that MAXI does not use options on Bitcoin.
MAXI has a modest distribution yield of 7.11%; however, the fund has caught a large portion of the recent gains by Bitcoin. The cryptocurrency is up 121% over the last year, and for the year through June 30, MAXI returned 80.92%. Since its inception, the ETF has had a total return of 189.6%.
The Roundhill Bitcoin Covered Call Strategy ETF (YBTC) is much younger, having launched on January 18, 2024. For its portfolio holdings, YBTC employs a synthetic long position using the ProShares Bitcoin Strategy ETF (BITO). BITO was the original Bitcoin tracking ETF.
The fund uses futures contracts to track the price of the cryptocurrency. A synthetic long position involves buying calls and selling puts with the same strike price and expiration. YBTC has a current distribution yield of 24.33%; the total return since inception has been 27.3%. The YBTC monthly dividends have varied wildly, ranging from a low of $0.91 up to $4.125. This is a fund that performs best when Bitcoin volatility is high.
The YieldMax Bitcoin Option Income Strategy ETF (YBIT) launched on April 22, 2024, and has paid just two monthly dividends. The fund prefers to use a synthetic long options position using unspecified ETFs that hold “physical” or “spot” Bitcoin. However, the current synthetic position also uses BITO. As you often see with the YieldMax single stock covered call ETFs, YBIT sports an eye-popping distribution yield of 86.27%.
You can see there is a wide range of strategies, yields and potential returns. Since Bitcoin tends to swing significantly both up and down, I suggest you strategically accumulate shares of these ETFs on the dips in Bitcoin. This approach will allow you to take advantage of the income from the covered call strategies, making you feel in control of your investment decisions.
— Tim Plaehn
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Source: Investors Alley