As of late, Bitcoin has shown some signs of life, recently ascending to three-month highs around $83,000 and garnering some momentum as the CLARITY Act did the same and as E*TRADE commenced offering spot trading of Bitcoin, Ethereum and Solana to its massive base of retail clients, many of whom have significantly larger account balances than the typical Robinhood client.
Still, there’s an aura of indecision in the Bitcoin market today and if the largest cryptocurrency by market capitalization adheres to the famous four-year cycle as some market observers believe will be the case, it’s possible, if not likely, that one more significant sell-off could be in the offing this year before Bitcoin earnestly regains a bullish posture.
That indecision puts a spotlight on the advantages of protected Bitcoin ETFs – a concept pioneered by Calamos Investments. The firm’s lineup of Bitcoin protected ETFs includes the Calamos Bitcoin 80 Series Structured Alt Protection ETF (CBTA), Calamos Bitcoin 90 Series Structured Alt Protection ETF (CBXA) and the Calamos Bitcoin Structured Alt Protection ETF - April (CBOA).
Obviously, these aren’t plain vanilla spot Bitcoin products, but they aren’t overly complex, either. Here’s how the Calamos bring buffering and upside protection to Bitcoin.
Bespoke Protection
One of the most compelling attributes of the Calamos ETFs is that the funds provide for bespoke protection. Said another way, advisors accessing these product can choose their level of downside protection and their upside cap ranges.
“Each Calamos Bitcoin Structured Protection ETF consists of three layers. The first two layers are options positions that work together as a call spread, while the third layer is made up of Treasury bonds providing downside protection,” according to the issuer. “The options layers have different strike prices (the price at which the option purchaser may buy or sell the security), the same expiration date (approximately one year), and the same style (European style options). These option contracts are set at a predetermined strike price at launch and then again at the beginning of each new outcome period.”
(Image: Calamos Investments)
Love the Layers
ETFs such as the aforementioned CBOA, CBTA and CBXA use options for upside participation, also known as the first layer. So for a 100% protected Calamos ETF, the issuer uses a 1-year option contract on the CBOE Mini Bitcoin U.S. ETF Index that’s at the money while the 80% and 90% protected ETFs rely on contracts that are in-the-money or 10% to 20% the underlying asset’s price.
The second-protective layer is provided via zero-coupon bonds, which is an effective tool because those bonds are often issued at discounts, but redeem at 100% of their value upon maturity.
“This allows the ETFs to purchase these bonds at a discount and provide 96% of the value at maturity (minus fees and expenses),” adds the issuer. “A box spread achieves principal protection creating a synthetic zero-coupon bond constructed with FLEX options that often generates a higher yield than duration-equivalent US Treasuries.”
The upside cap is the last layer and that relies on shorting a 1-year out-of-the-money (OTM) FLEX call option on the CBOE Mini Bitcoin U.S. ETF Index. There’s some math involved (Calamos does the heavy lifting there), but it results in benefits to end users.
“The upside participation layer acts as a credit to the portfolio value, equal to the price that would make the total options package ‘no-cost’ (or fully financed),” concludes the issuer.
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