Calamos Investments Introduces Exchange-Traded Fund Targeting Bitcoin

By JE Insights, Benzinga

While Bitcoin and the broader concept of decentralized digital assets have revolutionized the global economy, the rapid innovation comes with a profound risk: BTC and similar virtual currencies are wildly volatile.

Given the triple-digit percentage gains and losses that may be seen in a single year, many investors have chosen to stay away from the sector. Recognizing this opportunity gap, Calamos Investments (NASDAQ:CLMS) – a leading global investment firm – set out to create an exchange-traded fund that combines the best of both worlds: the capital gains potential of the benchmark blockchain asset and the mitigatory mechanisms found in advanced options trading strategies.

This ETF is the Calamos Bitcoin Structured Atl Protection ETF (NYSE:CBOJ), which aims to provide principal downside protection and offer some upside exposure to Bitcoin over a defined outcome period.

As the name suggests, the CBOJ fund aims to combine the best of both worlds: the capital gains potential of the benchmark blockchain asset and the mitigatory mechanisms found in advanced options trading strategies. Through an investment in CBOJ, market participants can potentially sleep easier, knowing that their principal receives built-in downside protection over a defined outcome period. At the same time, they may receive upside exposure to Bitcoin’s rise to a defined cap.

Still, the idea of a downside-protected Bitcoin investment may sound like pure science fiction to many, especially given BTC’s remarkable undulations. Investors learning about Calamos’ risk-mitigated products all have the same question: how do these strategies work?

A Brief Rundown Of The Bull Call Spread

To understand the mechanism of the CBOJ ETF, it’s critical to have a solid understanding of multi-leg options strategies, particularly the bull call spread. A call option is a derivative instrument that gives the holder the right (but not the obligation) to buy an underlying security or asset at the listed strike price. Conversely, call sellers underwrite the risk that the said security will not materially rise.

Now, astute traders may engage in a defined-risk, defined-reward strategy known as the bull call spread. In this transaction, a trader buys a call option and simultaneously sells a call option (for the same expiration date) at a higher strike price. The proceeds from the short call partially offset the debit paid for the long call, resulting in a discounted long position. Effectively, it’s a sophisticated mechanism to reduce the cash outlay to buy “expensive” options while also potentially benefiting (to a defined level) from capital gains.

The Beauty Behind The CBOJ ETF

Having gone over the mechanics of the bull call spread, let’s turn to the CBOJ ETF. To achieve the downside protection, the CBOJ utilizes a nearly identical structure to a standard call spread. However, rather than utilizing a direct cash outlay, Calamos uses a combination of the protected principal to enter a position in the ETF and proceeds received from the short call component of the call spread.

In this setup, most of the investor’s funds are allocated to zero-coupon U.S. Treasury bonds. These bonds are purchased at a discount and mature at par, meaning the investor’s principal is effectively protected at the end of the outcome period. That’s the first major difference from a standard call spread – the investor’s base capital isn’t actually exposed to Bitcoin’s volatility.

With that principal shielded, fund managers construct a synthetic bull call spread using the remainder of the capital. On the debit side, they acquire a call option on a Bitcoin-linked index to gain exposure to potential upside. However, due to the high premiums associated with at-the-money (ATM) or ITM call options, Calamos sells a higher out-of-the-money call to offset the cost. The premium from this short call helps fund the position, resulting in a net-zero or near-zero cost for the options spread.

Subsequently, the outcome is a defined-risk, defined-reward structure – but instead of risking investor capital on the front end, the ETF uses a combination of bond math and options strategy to create a payoff profile similar to a bull call spread. Therefore, if Bitcoin drops sharply, the investor can walk away with their initial investment (less fees). However, if BTC rises, the investor participates in the gains up to a preset cap, determined by the strike of the short call.

For clarity, the full downside protection applies to positions held for the entire outcome period, which typically lasts about one year. As with standard bull call spreads, the CBOJ offers a capped reward potential while limiting risk to a defined level.

Investing Rather Than Betting

Although Bitcoin has sparked a new wave of investing sentiment, the crypto sector is notorious for its intense volatility. While this framework may appeal to extreme speculators, the unpredictable nature of the blockchain may dissuade many other investors. To that end, Calamos aims to bridge the gap, providing an alternative that allows investors to participate in Bitcoin’s potential gains while