Roundhill launches YBTC Bitcoin ETF with OTM strategy

Roundhill Covered Call Strategy, one of the most popular investment strategies in the ETF industry, is launching its own Bitcoin ETF.

Roundhill Investments is the latest firm to launch a Bitcoin ETF designated by the ticker YBTC. The ETF has started trading today at the Chicago Board Options Exchange (CBOE). YBTC is an actively managed fund that aims to mirror the dynamics of Bitcoin, primarily through its investment in the ProShares Bitcoin Strategy ETF (BITO). 

One of the key strategies employed by YBTC is the selling of out-of-the-money (OTM) call options on BITO. This approach serves a dual purpose: it creates an avenue for additional income while simultaneously capping the upside potential of Bitcoin’s price movements. This strategy introduces the risk of the fund underperforming compared to Bitcoin’s direct market performance.

How does the OTM call strategy work in Bitcoin ETFs?

A call option gives the buyer the right, but not the obligation, to purchase an asset at a predetermined price, called the strike price, on or before a specific date. An option is considered “out-of-the-money” if the strike price is higher than the current market price of the underlying asset. In the context of YBTC, these call options are sold on the Bitcoin ETF, with strike prices set above the current market price.

When YBTC sells these OTM call options, it collects premiums from the buyers. These premiums serve as an additional source of income for the ETF. This is a key feature of the covered call strategy, wherein the fund generates revenue irrespective of the market movement of the underlying asset.

The primary objective of YBTC is to provide investors with a means to engage with Bitcoin, the leading cryptocurrency by market capitalization. By implementing a covered call strategy on Bitcoin ETFs, YBTC aims to generate a consistent monthly income.

This strategy allows investors to participate in Bitcoin’s price fluctuations, albeit with an upper limit on potential gains. Furthermore, the fund aims to distribute returns, if any, on a monthly basis, aligning with its income-generation goal.