BTCI: Squeezing ~30% Distribution Yield From Bitcoin

Summary BTCI offers high monthly ‘income’ by writing call options on Bitcoin futures but carries significant risk due to Bitcoin’s volatility. The strong performance of Bitcoin and its high 30%+ distribution yield has attracted relatively strong investor interest, with AUM rising quickly. While BTCI has outperformed traditional assets by a wide margin, its options strategy can cap upside and lead to underperformance versus pure Bitcoin ETFs in strong rallies. BTCI is best suited for income-focused investors comfortable with volatility but is not appropriate for the risk-averse given the potential for rapid declines. Written by Nick Ackerman, co-produced by Stanford Chemist NEOS is an ETF sponsor that has been bringing some unique ETFs to the market. One of those is the NEOS Bitcoin High Income ETF ( BTCI ), launched toward the end of 2024. This is a relatively newer fund, but the idea is rather simple: the fund holds cash equivalents and Bitcoin USD ( BTC-USD ) exposure through an ETF and long call options while it also writes call options against Bitcoin futures. The fund is actively managed with a “data-driven call option strategy.” By writing call options, this provides the fund with option premiums, which can be distributed to investors. I believe this fund is rather risky overall and definitely not for those risk-averse investors. However, someone who is interested in investing in Bitcoin and wants high distribution could find it an interesting idea. BTCI Basics Dividend Frequency: Monthly. Dividend Yield: 2.10% SEC yield, 30.25% Distribution Yield. Expense Ratio: 0.98%. Leverage: N/A. Managed Assets: $345.1 million. Structure: Active ETF. BTCI’s investment objective is to “generate high monthly income with the potential for appreciation based on exposure to exchange-traded products (“ETP”) that have direct exposure to Bitcoin. They continue with seeking “to distribute monthly income generated from writing call options on Bitcoin Futures ETFs.” The fund is actively managed and “seeks to offer upside potential via efficient exposure to Bitcoin ETPs.” Despite a relatively short history of coming to market only on October 17, 2024, the fund has garnered much interest, and AUM has risen rapidly. Generally, a high distribution rate can cause a lot of attention. The popularity of Bitcoin also appears to be growing, thanks to its very strong returns as well. Of course, we know that is history, and past performance is no guarantee of future results. So, make of that what you will. BTCI’s Portfolio BTCI’s portfolio is quite simple, as it tends to be for this single-asset ETF offering. They hold VanEck Bitcoin ETF ( HODL ) as their more straightforward exposure to Bitcoin; however, it can get a bit more complicated with the options positioning. This is because they go long and short Bitcoin call options as well as short puts. Overall, the fund holds the highest allocation to U.S. Treasury Bills. Date Account Stock Ticker CUSIP Security Name Shares Price Market Value Weightings 6/25/2025 BTCI 912797PQ4 912797PQ4 United States Treasury Bill 08/28/2025 230,718,000 $99.24 $228,968,193.16 67.23% 6/25/2025 BTCI HODL 92189K105 VanEck Bitcoin ETF/US 2,806,874 $29.91 $83,953,601.34 24.65% 6/25/2025 BTCI MBTX 250718C00225000 MBTX 250718C00225000 MBTX US 07/18/25 C225 10,474 $28.05 $29,379,570.00 8.63% 6/25/2025 BTCI MBTX 250718C00270000 MBTX 250718C00270000 MBTX US 07/18/25 C270 -3,491 $3.35 ($1,169,485.00) -0.34% 6/25/2025 BTCI MBTX 250718C00285000 MBTX 250718C00285000 MBTX US 07/18/25 C285 -3,491 $1.55 ($541,105.02) -0.16% 6/25/2025 BTCI MBTX 250718P00225000 MBTX 250718P00225000 MBTX US 07/18/25 P225 -10,474 $2.30 ($2,409,020.00) -0.71% 6/25/2025 BTCI Cash & Other Cash & Other Cash & Other 2,377,906 $1.00 $2,377,906.24 0.70% By going long call options and short puts, the fund is creating a synthetic options strategy, which they further outline in the prospectus : The Fund primarily derives its exposure to the Bitcoin Futures ETF by trading options that use the Bitcoin Futures ETF as the reference asset; however, the Fund may hold some shares of the Bitcoin Futures ETF directly. Because the Fund’s exposure to the Bitcoin Futures ETF is obtained via options instead of owning the reference asset, the Fund’s exposure is considered to be “synthetic.” The synthetic exposure is created through the combination of purchasing call options and selling put options generally at the same strike price with the same expiration. This combination synthetically creates the upside and downside participation in the price returns of the Bitcoin Futures ETF. The Fund will primarily gain exposure to increases in value experienced by the Bitcoin Futures ETF through the purchase of call options. As a buyer of these options, the Fund pays a premium to the seller of the options. The Fund will primarily gain exposure to decreases in value experienced by the Bitcoin Futures ETF through the sale of put options. As the seller of these options, the Fund receives a premium from the buyer of the options. In combination, the purchased call and sold put options generally provide exposure to price returns of the Bitcoin Futures ETF both on the upside and downside. Performance And Distribution The fund offers an extremely high distribution rate of ~30% so far. As long as Bitcoin can continue to have a strong run, this fund could actually achieve that type of return. As we can see, the fund has delivered market-beating returns against both equities and fixed income—this is by a huge margin too. The market price was $50 at launch and is now closer to $60, indicating that there has been some appreciation on top of the high distribution rate. YCharts However, I believe there is considerable risk in investing in Bitcoin as it can be quite a volatile asset. In fact, that’s generally why the distribution rate can be so high, as the volatility increases, the option premiums are brought in. For example, the fund utilizes writing options (and goes long) with the CBOE Mini Bitcoin U.S. ETF Index, which has an implied volatility of around 35% on the $250 call. CBOE Mini Bitcoin U.S. ETF Index (Fidelity) For some context, the implied volatility for the SPDR® S&P 500® ETF ( SPY ) for the first call strike below the current trading price is at ~17%. By writing those calls, the fund generates the cash flow provided by collecting the premiums and distributing them through a monthly distribution. Given the high allocation to U.S. Treasury Bills, that’s also generating some interest payments within the fund. BTCI Distribution History (Seeking Alpha) Basically, that is where the 30-day SEC Yield of 2.10% is coming in while the fund’s distribution rate is listed at 30.25% currently on the fund’s website. BTCI Distribution and Expenses (NEOS) However, there is some downside to the fund utilizing options writing to generate the cash for the distribution. It comes with the risk that all call writing funds have to contend with, and that is the upside cap when an underlying investment is running sharply higher. This cap can get hit, and it can mean that the fund can limit its upside. In fact, the fund’s latest semi-annual report for an abbreviated period showed that the fund saw realized losses from the written option contracts. BTCI Semi-Annual Report (NEOS) That’s where you can see that BTCI has actually underperformed its ETF holding, HODL, by quite a meaningful margin. YCharts However, there can be some potential downside protection with a call writing strategy. It isn’t much, but the premiums received offset declines in the underlying instruments that BTCI is long as well. In a flat market, BTCI would also be considered outperforming, as even if the underlying is moving sideways, those premiums can still be collected for some gains. One fund I hold that is in the Bitcoin space, while also paying a monthly distribution, is ProShares Bitcoin ETF ( BITO ). The fund has outperformed BTCI during this period since the ETF’s inception. YCharts However, the fund invests in futures and swaps for its Bitcoin exposure. It also doesn’t utilize an options writing strategy, but the distributions come from the gains (and interest payments from the underlying Treasury holdings) produced on those derivatives. If those gains stopped, the distribution would fall dramatically—closer to the yield on Treasury Bills minus the 0.95% expense ratio. That’s why you’ll see the distribution history looks like this: BITO Distribution History (Seeking Alpha) As a more income-focused investor, I definitely prefer BITO and BTCI compared to holding a Bitcoin ETF or holding Bitcoin itself. I’m aware of not participating as much in the overall total returns. However, I find peace of mind, and that it is beneficial to have these gains/income distributed out monthly. If there is a collapse in Bitcoin, then I know some gains will be locked in or losses limited. Conclusion BTCI is a risky strategy as Bitcoin is considered quite volatile. At the same time, it has performed extremely well, and that has meant a lot of investor interest is being driven in that direction. BTCI provides exposure to Bitcoin either through ETFs or synthetically with options; it then applies an options writing strategy over the portfolio, which provides a significant monthly distribution to investors. High distributions tend to gain a lot of investor interest, so it might not be too surprising to see how fast this ETF is seeing inflows. However, I would reiterate that it does not appear to be appropriate for more risk-averse investors. The fund has experienced significant appreciation thanks to strong gains from Bitcoin, but such strong gains will not be guaranteed going forward. April of this year provided a good example of how far Bitcoin and this ETF can fall quite rapidly.

Source: Seeking Alpha