Covered call strategy aims to dampen volatility of crypto investing

Covered call strategy aims to dampen volatility of crypto investing
Toronto-based Purpose Investments pushes the digital investing envelope by selling options on the cryptocurrency holdings of two new ETFs.
NOV 30, 2021

Leave it to Canada, where asset managers are permitted to offer investors direct exposure to cryptocurrencies, to find a way to take the volatility sting out of crypto investing.

Toronto-based Purpose Investments, which manages $14 billion worth of Canadian dollars across a family of mutual funds and exchange-traded funds, has rolled out two covered-call crypto ETFs to help smooth the volatility of investing in digital assets.

The new Purpose Bitcoin Yield ETF and Purpose Ether Yield ETF will offer performance caps and downside protection in an effort to draw more investors to the crypto investing universe.

“The space is growing, and with growth we’re seeing more opportunities to step in to provide different ways to gain access and exposure to cryptocurrencies,” said Vlad Tasevski, chief operating officer and head of products at Purpose.

“High volatility is one of the characteristics of crypto investing and these strategies are a way to benefit from that volatility,” Tasevski said.

The funds will employ a basic covered call strategy that involves owning shares of existing Purpose Bitcoin and Purpose Ether ETFs and then selling call options on the underlying ETF positions.

The performance ceilings and floors will fluctuate based on the price of the options being sold, but Tasevski said the funds will generally produce between 70% and 80% of the performance of the underlying digital currency, while limiting downside to between 50% and 70% of the underlying.

“Ultimately, the reason we’re offering this is there are investors who are not comfortable with the volatility of cryptocurrencies,” he said.

Bitcoin, for example, while up about 200% over the past 12 months, is down more than 5% over the past 30 days and has shown a propensity for wild swings over short time periods.

Purpose also announced the launch of an actively traded cryptocurrency ETF, Purpose Crypto Opportunities ETF.

“We’re very excited to once again be a global leader in delivering high-quality new crypto solutions to investors by launching three new actively managed and option strategy yield cryptocurrency ETFs,” Som Seif, founder and chief executive at Purpose Investments, said in a statement.

“With these ETFs, we aim to expand the ways investors can access crypto markets and generate the unique returns available in this emerging asset class,” Seif added. “These products will complement our existing Bitcoin and Ether ETFs and provide a different form of return-and-risk profiles for investors.”

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