In the case of BITA, if bitcoin recovers, the ETF benefits from its IBIT holdings, but profits are limited by having to pay calls. If BTC remains stable or falls, the call premium offsets some of the fall. In effect, investors give up potential profits in exchange for a more stable income stream.
“By implementing a buy hedging 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 returns while retaining around 70% share of its underlying capital appreciation potential,” Tagus Capital said in an email.
The strategy could also affect the overall market, which is influenced by the balance of options between supply and demand. Systematically selling call options, or overwriting them, suppresses bitcoin’s implied volatility. Bitcoin’s 30-day implied volatility has been falling since 2022, and call overwriting is one of the main reasons. (See daily signal, below)
Now BlackRock is institutionalizing that at scale. More systematic selling of options means more premium supply coming to 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 rebound to above $66,000 from below $59,000 still lacks institutional support. US-listed spot ETFs saw an outflow of $64 million on Monday, bringing withdrawals for the month to $2.1 billion.
