Bitwise has introduced three new actively managed exchange-traded funds (ETFs) that use advanced algorithms to generate option income and profit from market volatility.
The Bitwise MSTR Option Income Strategy ETF (IMST), Bitwise COIN Option Income Strategy ETF (ICOI), and Bitwise MARA Option Income Strategy ETF (IMRA) aim to generate monthly income by investing in the stocks of Marathon Digital Holdings (MARA), Coinbase (COIN), and MicroStrategy (MSTR), respectively.
Bitwise Leverages “Covered Calls” Strategy and ETF Features
The ETFs will leverage “covered calls,” a popular options trading technique that involves holding a long position in a stock while simultaneously selling call options on the same stock. Using this strategy, the company generates income from the premiums collected on the sold options but limits the upside potential of the underlying stock.
Each stock has a tailored investment strategy tied to its underlying stock. For instance, IMST focuses on generating income from MicroStrategy’s highly volatile price movements while maintaining exposure to its share price. Additionally, ICOI aims to capitalize on Coinbase’s market activity amidst its role as a leading cryptocurrency exchange.
The funds employ synthetic covered call strategies by purchasing and selling combinations of call and put options tied to their respective stocks. This enables them to limit participation in extreme upward price movements beyond certain strike prices while generating income.
Rationale Behind the Chosen Stocks
Because of their intimate ties to the cryptocurrency ecosystem, which is known for its extreme volatility, MicroStrategy, Coinbase, and Marathon Digital are suitable for option-based strategies. Through exchange-traded funds (ETFs), investors can profit from this volatility in a controlled and organized way.
Furthermore, ETFs offer two benefits: monthly income and active management for market dynamics. They provide regular monthly income distributions with a net expense ratio for each fund of 0.98%. Fee waivers are in place for ICOI and IMST through March 2027.
Additionally, the funds dynamically adjust their positions based on real-time market conditions, providing flexibility that passive strategies relying on fixed rules or indices lack. For instance, they monitor changes in sentiment, capital flows, news flows, and regulatory developments in the options and equities markets.
On the downside, options can lead to restricted upside profits and potential losses if stock prices exceed certain levels. This is especially relevant given the high volatility of underlying stocks MSTR, COIN, and MARA due to their ties to Bitcoin and the digital assets space.
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