Although Bitcoin and the broader cryptocurrency ecosystem have enjoyed a remarkable resurgence in recent sessions, the upswing also underscored a key point: BTC is incredibly volatile. Through a simple consequence of inopportune timing, an investor can potentially suffer hefty losses. To help mitigate the haphazard nature of the crypto market’s price discovery, Calamos Investments has introduced downside-protected Bitcoin exchange-traded funds.
Fundamentally, the unique challenges of the new economic paradigm under the Trump administration have impacted most market sectors—and digital assets are no exception. In January, Bitcoin traded hands above the $100,000 level. However, by early April, BTC could be acquired for around $76,000, representing roughly a 27% drop.
True, Bitcoin has since reclaimed the six-digit benchmark, exceeding $109,000 after posting an all-time high in May, but an uncomfortable narrative has also been written. If BTC did not recover and instead consolidated around the $76,000 level, crypto investors would have absorbed a hefty loss. It is in this—and similar—scenarios where Calamos’ downside-protected Bitcoin ETFs offer relevant solutions.
Thanks to a combination of sophisticated financial transactions and the unique geometry of multi-leg options strategies, Calamos offers retail investors synthetic exposure to Bitcoin with embedded risk/reward shaping. While pure exposure to BTC affords the highest reward potential, as the asset’s volatility demonstrates, the downside can be severe. To help address the volatility risk, Calamos’ ETFs incorporate derivative contracts that act like an insurance policy against downward price action.
At the same time, Calamos embeds an options strategy that’s structured much like a call spread: a long call that rises in value if Bitcoin swings northward and a short call that generates income and helps defray the cost of the trade.
Essentially, if Bitcoin rises robustly, the short call would be assigned—the call seller (writer) would be obligated to sell BTC at the underlying strike price. However, the long call (which is acquired at a lower strike price than the short call) offsets this obligation, translating to a capped or defined reward.
Conversely, if Bitcoin suffers a steep correction, the call spread component of the risk-defined ETF would expire worthless. However, the protective options strategy would kick in, providing the ETF product’s defined protection.
Investors should note that the targeted protection and capped returns only apply to positions acquired at the beginning of an outcome period and held to its conclusion. As such, Calamos ETFs offer more conservative-minded market participants exposure to crypto’s upside potential while hedging against its downside movements.
Modeling A Whiplash Year: How Calamos Bitcoin ETFs Respond To Volatility
While Calamos’ downside-protected Bitcoin ETFs offer a straightforward solution—essentially a capped-risk, capped-reward product—the mechanism can be somewhat convoluted. Therefore, it’s helpful to consider hypothetical scenarios.
Let’s suppose that an investor bought one of the Calamos products at the beginning of a one-year outcome period. During the first six months, assume that Bitcoin rose 50% and then in the second six months fell 50%, to end the one-year period flat. What would the approximate price level be for the various downside-protected ETFs at the six-month and 12-month intervals?
For the Calamos Bitcoin Structured Alt Protection ETF – January Overview (BATS:CBOJ), the investment pays a maximum value of 11.65% but only at expiration (i.e., at the end of the outcome period). At the halfway point, there’s still time value embedded in the short call, thus reducing the net present value of the ETF’s payoff.
Here, the math becomes a bit complicated, but in essence, the underlying call spread’s decay curve is at the halfway point. Therefore, the spread is approximately worth 45% to 60% of the maximum possible value. Translation? In this hypothetical scenario, the CBOJ investor can expect to be up between 5% and 7%.
At the 12-month mark, Bitcoin is assumed to have stumbled, ending up flat relative to the beginning of the year. If BTC continues to fall, the downside protection would kick in, and the CBOJ investor would see a 0% return, plus fees and expenses, irrespective of how low the crypto plunged.
For Calamos Bitcoin 90 Series Structured Alt Protection ETF – January Overview (Cboe: CBXJ), the investment pays a maximum value of 29.15% at expiration. Realistically, the value at the six-month mark for the CBXJ may be around 15% to 19%. At the 12-month mark, if Bitcoin falls flat relative to the beginning of the period, the return of the CBXJ would be 0%. Should BTC suffer an implosion, the most that can be lost is 10%, plus fees …