Roundhill introduces YBTC Bitcoin ETF featuring an innovative OTM approach
Roundhill Covered Call Strategy, a highly popular investment approach in the ETF industry, is introducing its own Bitcoin ETF. The firm, Roundhill Investments, has launched the ETF with the ticker YBTC, and it is now available for trading on the Chicago Board Options Exchange (CBOE). YBTC is an actively managed fund that seeks to replicate the performance of Bitcoin by primarily investing in the ProShares Bitcoin Strategy ETF (BITO).
One of the key strategies employed by YBTC involves selling out-of-the-money (OTM) call options on BITO. This strategy serves a dual purpose: it generates additional income while also limiting the potential upside of Bitcoin’s price movements. However, it is important to note that this strategy introduces the risk of the fund underperforming in comparison to the direct market performance of Bitcoin.
So, 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, known as 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 case 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 receives 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, as it allows the fund to generate revenue regardless of the market movement of the underlying asset.
The primary objective of YBTC is to provide investors with a way to participate in Bitcoin, the leading cryptocurrency in terms of market capitalization. By implementing a covered call strategy on Bitcoin ETFs, YBTC aims to generate a consistent monthly income. This strategy enables investors to benefit from Bitcoin’s price fluctuations, albeit with a cap on potential gains. Additionally, the fund aims to distribute any returns on a monthly basis, aligning with its goal of generating income.
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