BTCI: Effective Strategy Reflected In Total Return

Summary BTCI offers a high 27.8% yield using a covered call strategy on Bitcoin, appealing to income-focused investors. The fund’s approach limits the upside during Bitcoin rallies, but this trade-off is typical for covered call ETFs and accepted by yield-seeking investors. My focus is always total return, and despite a bad start in November, BTCI has delivered impressive results. The NEOS Bitcoin High Income ETF (BTCI) is a relatively new addition to the growing number of funds employing covered call strategies and offering high dividend yields. BTCI currently yields an impressive 27.8%. The trade-off is that the strategy slightly limits capital gains during rallies in the underlying security (Bitcoin), but that is a feature of all funds of the same type, and it seems this is not an issue for income investors. Assets under management have steadily grown in BTCI, and other similar funds are showing equally impressive inflows. Data by YCharts The rise in the popularity of these funds has surprised me. The concept is not new, and the Invesco S&P 500 BuyWrite ETF ( PBP ) was launched in 2007. Another similar fund, the Global X S&P 500 Covered Call ETF ( XYLD ) was launched in 2013. Neither ETF garnered that much attention, and you can see why. Data by YCharts XYLD has an attractive 13% yield and monthly payouts, but it significantly underperforms the S&P 500 ( SPY ) on a total return basis. Newer income funds such as BTCI have taken a similar strategy but improved on it. While XYLD and PBP were passively managed and tracked CBOE S&P 500 BuyWrite Index (a hypothetical “buy-write” strategy on the S&P 500), BTCI actively manages its own options overlay strategy. But is it effective? The Strategy The first part of BTCI’s strategy is simple – gain exposure to Bitcoin. However, BTCI has no direct holdings in Bitcoin for tax reasons. A full explanation can be found on page 53 of this link . It therefore employs two alternative methods . (i) investing in exchange-traded spot Bitcoin ETPs (the “Spot Bitcoin ETPs”) primarily through a controlled foreign corporation and in some cases by directly investing in Bitcoin ETPs (ii) obtaining indirect Bitcoin exposure through ETFs that invest principally in Bitcoin futures contracts (each, a “Bitcoin Futures ETF”), which is obtained by employing an options strategy that consists of selling (writing) put options and buying call options at the same strike price on one or more Bitcoin Futures ETFs The positions are highlighted in the holdings table below. NEOS The large position in US Treasury Bills is used for collateral (cash alternative) on its options trades. This will provide a small but welcome yield. The second part of BTCI’s strategy is the options overlay, designed to provide income. This involves selling options and collecting the premium. We can see from the holdings listed above that BTCI has sold two options on MBTX (the CBOE mini Bitcoin US ETF index), both with an expiry of 06/20/25 and strikes of 245 and 250. As Neos explains: If the price of the reference asset is greater than the strike price at the expiration date, the counterparty will exercise their option. This obligates the writer to sell the reference asset to the counterparty (buyer) at the pre-specified price, which will be at a price below the market price, resulting in a loss for the writer and an equivalent profit for the holder. At the current price of $257, the buyer is in profit and BTCI will lose money. TradingView Since Bitcoin tends to trend higher, this process must happen quite regularly. BTCI will still win on its Bitcoin exposure, but as the prospectus explains, the options overlay caps the gains. …the Fund will lose money on those written call positions, and the losses will, in turn, limit the upside return of the synthetic long exposure and Spot Bitcoin ETPs. Is it Effective? The options overlay does collect premium to distribute in the monthly dividend, but not very much. While the distribution rate of BTCI is a juicy 27.82%, the 30-day SEC Yield is 2.09%. This is the yield from income such as premiums (and from holdings in USTs). NEOS The rest of the yield is just a return of capital (ROC). May’s 19a-1 notice states that 97% of the monthly distribution came from return of capital. NEOS ROC allows the monthly distributions to be large and fairly consistent. Seeking Alpha Of course, the price of BTCI will drop on every distribution, and the fund’s price is below the 2024 high when spot Bitcoin has broken out to new all-time highs. TradingView Most holders know this and are happy to trade capital gains for a steady, high yield. However, the more important question is whether BTCI’s strategy is effective in creating yield and capturing capital gains. The evidence provided by the total return so far is inconclusive. Since its inception, BTCI’s total return is lagging the iShares Bitcoin Trust ETF ( IBIT ) by 14%, which is worrying since this has happened in around 7 months. Data by YCharts However, much of the IBIT outperformance in the chart above comes from the strong rally in November and may also be due to some issues around the time of BTCI’s launch. Remember, the options are actively managed. The Adviser utilizes a proprietary, rules-based, systematic model to manage the Fund’s options positions. The Adviser may actively manage the written and purchased call options prior to expiration to potentially capture gains and minimize losses due to the movement of the Bitcoin Futures ETFs. The data YTD has been much better as BTCI’s strategy should work best in sideways markets like we have experienced in 2025. Data by YCharts A 0.7% difference is insignificant given the volatility in the underlying asset. Furthermore, the chart above shows that BTCI outperformed during the drop (as it should). Data by YCharts It therefore appears that the strategy is effective and delivers what is expected. I would monitor its performance carefully given the limited evidence, but besides the blip in November just after BTCI’s launch, the data looks promising. Conclusions BTCI is a relatively new fund that seeks to provide regular, high income while maintaining exposure to Bitcoin. The income it generates from options is relatively low and return of capital makes up the majority of the distributions, but I don’t see this as a major problem. BTCI delivers on its promises and, importantly, its total return this year has kept pace with IBIT and even outperformed during the downturn.

Source: Seeking Alpha