Grayscale Investment Applied For A Covered Call Bitcoin ETF

Grayscale Investments has applied for a covered call Bitcoin exchange-traded fund (ETF), amid the approval for its spot Bitcoin ETF among the bunch of 11 applications that were greenlit by the United States Securities and Exchange Commission (SEC) on Jan 10.

But what exactly does a covered call Bitcoin ETF entails, and does it represent a safer or riskier investment for investors?

Grayscale Applies For A Covered Call Bitcoin ETF

On January 10, the SEC granted approval to 11 spot Bitcoin ETF applications from prominent US asset firms, delivering positive news to the crypto community. 

This expands access for investors who may be new to crypto but prefer traditional investment avenues like stock portfolios.

However, following this, news broke on Jan 11, that one of the successful applicants, Grayscale Investments, will be filing for a covered call Bitcoin ETF, which will allow investors to generate income from options on its Grayscale Bitcoin Trust (GBTC).

And so it begins…

Grayscale files for covered call ETF.

Actively managed exposure to GBTC & buys/sells call & put options that use GBTC as reference asset.

Going to see all variations of spot bitcoin ETFs. pic.twitter.com/3ehk8j0y51

— Nate Geraci (@NateGeraci) January 11, 2024

Common in the traditional stock market, a covered call ETF can potentially enhance an investors’ yield by buying a variety of stocks and writing call options on them.

See Also: GBTC Drops To New Low As Grayscale Falls In ETF Fees Race

The Street explains that a covered call strategy for ETFs often includes selling out-of-the-money calls under a certain amount of time, usually under two months. This means the security price is below the call option’s exercise price.

Therefore, investors can take advantage of quicker time decay with these shorter-term options.

Covered Call ETF Suits Investors Who Forecast Minimal Price Movement

According to Investopedia, this strategy suits investors who anticipate minimal movement in the underlying price over the long term.

However, usually the investor choosing this option plans to retain the asset for the long term. Furthermore, they opt for this strategy to generate income.

Although Grayscale had its spot Bitcoin ETF approved by the SEC on Jan 10, it was not a smooth sailing process. The asset management firm had to navigate a complex process.

This included seeking a re-review of its application from the US District Court of Appeals last year.

See Also: Grayscale Brings On New Managing Director Ahead Of ETF Decision

In August 2023, it was reported that the Court of Appeals for the D.C. Circuit granted Grayscale Investments’ petition to review a SEC order. 

This ruling vacated the SEC order that had blocked the Grayscale Bitcoin Trust from listing on the NYSE Arca exchange.

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