Creating Income From Bitcoin ETF Options

I have been trading crypto options since they were first introduced in 2018, and have been patiently waiting for them to “grow up.” The problem is that every time that we seem to be on the brink of some major breakthrough, the market crumbles and traders lose interest. This is the price of admission for this volatile asset. 

Yet…there is hope. In January this year, Bitcoin ETFs were released to the public, and I think we already know what happened with the big rally as this pipeline into the TradFi world brought a lot of latent demand to the asset. But STILL there are no options for these ETFs; I think that the SEC is scared to death that a version of Roaring Kitty will emerge and get everyone to buy call options again. So we wait for options to be written on ETFs like IBIT, etc. 

But there is one more option that we can explore. There is a new ProShares ETF (BITO) that is a “Bitcoin Strategy ETF” which loosely follows the price of Bitcoin. More importantly, it offers a full weekly options chain with which we can create an income stream!

For example, we can Sell To Open the 16AUG $20 BITO put option. This put option is paying about a $1.00 credit per share, which means that if you sell one contract of the BITO 16AUG $20 puts, $100 of cash goes directly into your account. You received the cash in exchange for obligating yourself to buy 100 shares of BITO at $20/share, which would be a $2000 commitment. 

Think about the numbers for a minute; earning $100 against $2000 in capital means that you have the potential to make a 5% return on your money over the next 51 days. You’re literally being paid to buy BITO for a lower price than today! 

One of two things will happen between now and the 16th of August; the price of BITO will either be above $20, or below $20. If the price of BITO is above $20 by 16 August, then your obligation will be released and you can put that money back to work again. If BITO is below $20/share on 16 August, then you can either do nothing and be “assigned” those BITO shares that you agreed to buy, or you can close out your contract and “roll down” your options to a lower price, further out in time. 

If you do accept the BITO shares, you can turn right around on the following Monday in August and start to write “covered calls” against your new shares, creating more income. This is why we call it the “wheel strategy” as you can create income on both sides of this transaction, going round and round every month. 

Please let me know if you need more information on this simple and powerful income strategy!