In the case of BITA, if Bitcoin rebounds, the ETF benefits from its IBIT holdings, but gains are capped by call payments. If $BTC remains stable or decreases, the call option subscription premium compensates part of the decrease. In effect, investors are giving up potential gains for a constant income stream.
“By deploying a covered call strategy on its Bitcoin-related exposure, the fund seeks to convert Bitcoin’s historically high volatility into a recurring income stream with an annual return target of +15% while maintaining approximately 70% ownership in its underlying capital appreciation potential,” Tagus Capital said in an email.
The strategy could also affect the broader market, which is influenced by the balance between supply and demand of options. Systematic selling of call options, or squashing, removes the implied volatility of Bitcoin. Bitcoin’s 30-day implied volatility has been declining since 2022, and call crushing is one of the main reasons. (Check daily signal below)
Today, BlackRock is institutionalizing this on a large scale. More systematic option selling means a greater supply of premiums in the market and greater downward pressure on volatility.
Bitcoin, already less wild than before, is about to become even a little more docile.
As for price action, bitcoin’s recent rebound from below $59,000 to above $66,000 still lacks institutional support. U.S.-listed cash ETFs recorded an outflow of $64 million on Monday, bringing withdrawals for the month to $2.10 billion.
