Cboe launches first suite of BuyWrite indices on spot bitcoin ETF

Cboe has recently launched its first BuyWrite index products based on spot Bitcoin ETFs.

These indices are the first option-based indices in the market to track the performance of systematic covered call strategies, with spot Bitcoin ETFs as the underlying assets. The underlying assets for both the ATM (at-the-money) and OTM (out-of-the-money) indices are the Grayscale Bitcoin Trust ETF (GBTC). This launch is part of Cboe's commitment to bringing traditional option-based income strategies to the digital asset market, aiming to provide market participants with new ways to gain exposure to cryptocurrencies while helping manage risk.

The Cboe GBTC ATM BuyWrite Index (BXGBTCA) is designed to track the performance of a monthly covered call strategy, which involves holding a synthetic long position in GBTC while shorting at-the-money call options on GBTC. The Cboe GBTC 20% OTM BuyWrite Index (BXGBTCT) employs a similar strategy but short-sells out-of-the-money call options priced 20% above the current price.

These two indices do not directly hold Bitcoin but track the performance of the Grayscale Bitcoin Trust (GBTC) through options contracts, thereby providing investors with a way to gain Bitcoin exposure without directly holding cryptocurrency.

Since the launch of the spot Bitcoin ETF in January 2024, Bitcoin volatility has remained elevated. As of 21 November 2024, GBTC's annualised volatility had exceeded 50%. Against this backdrop, market interest in yield strategies that capture Bitcoin risk premiums while mitigating volatility has grown.

BXGBTCA and BXGBTCT aim to measure the performance of these option-based strategies, which partially hedge against Bitcoin price volatility by collecting GBTC option premiums. However, the two strategies have slightly different focuses.

BXGBTCA prioritises yield generation by systematically selling near-the-money call options to collect higher option premiums. This strategy performs better in sideways or rapidly declining markets but may lag behind direct holding strategies in rapidly rising markets.

In contrast, BXGBTCT seeks a balance between yield and growth. It sells call options at higher strike price levels, allowing investors to participate in the upside potential of the underlying asset, but the option premiums received are relatively lower.