In BITA’s case, if bitcoin rallies, the ETF benefits from its IBIT holdings, but the gains are capped by having to pay out on the calls. If $BTC holds steady or falls, the call-writing premium offsets some of the decline. In effect, investors give up potential gains for a steadier stream of income.
“By deploying a covered-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% annual yield while retaining around 70% participation in its underlying capital appreciation potential,” Tagus Capital said in an email.
The strategy could also affect the broader market, which is influenced by demand-supply balance of options. Selling call options systematically, or overwriting, suppresses bitcoin’s implied volatility. Bitcoin’s 30-day implied volatility has been dropping since 2022, and call overwriting is a major reason. (Check Daily Signal, below)
Now BlackRock is institutionalizing that at 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 about to get a little tamer still.
As for price action, bitcoin’s recent bounce to over $66,000 from under $59,000 still lacks institutional support. The spot ETFs listed in the U.S. registered an outflow of $64 million on Monday, taking the month’s withdrawals to $2.10 billion.
