DFII employs an options strategy to build income and gain exposure to bitcoin price returns

This is done through a mix of FLEX Options and over-the-counter options, among others. These options traditionally use bitcoin ETPs or ETP indexes as their reference assets.

First Trust II: Bitcoin, Partial Covered Call

First Trust (NASDAQ: FDT ) II: Bitcoin (DFII B-) is an interesting new ETF that seeks to provide exposure to the price total return of bitcoin, and it does so via an options strategy.

The fund is tracking the performance of the Optimum Yield Diversified Institutional Index, and it does so through a mix of FLEX Options, over-the-counter options and other instruments. These options typically use bitcoin ETPs or ETP indexes as their reference assets.

To help further bolster the fund’s overall income, First Trust is also looking to employ a partial covered call strategy with DFII. This strategy will see the fund selling call options either at-the-money or at the approximate value at the time of the fund’s inception.

While these options strategies may limit DFII’s ability to fully engage in any bitcoin price rallies, they do offer a number of other benefits. Along with income potential, a strong options overlay can help a portfolio achieve a more attractive risk profile.

This could be particularly useful for a volatile asset like bitcoin. A final point to consider is that DFII comes online at a moment in which interest is building over both cryptocurrency and options strategies.

Given the turbulent nature of the U.S. market, some advisors and investors are turning to covered call and other options-based strategies as an alternative method for building income.

At the same time, the price performance of bitcoin remains a highly debated topic within the investment community. Some advisors believe that the cryptocurrency could return to all-time highs in the coming years, while others are less optimistic.

However, advisors and investors willing to bet on bitcoin in 2025 could very well see significant income down the line, especially if the cryptocurrency manages to rally to new all-time highs.

First Trust

With over 30 ETFs listed in the United States, First Trust offers a number of compelling products for the investment community. This includes the timely FT Vest U.S. Equity Buffer ETF – April (FAPR B-), which has over $700 million in assets under management.

The ETF provides downside risk protection to the S&P 500 Index (Index: ^GSPC) with unleveraged price exposure. It is designed to buffer the investment from the first 10% of price depreciation and attempts to track the S&P 500 Index’s total return performance.

Moreover, if the S&P 500 Index declines by 10% or less at the final observation on March 30, 2024, the ETF endeavors to return the capital invested in the ETF, less applicable fees and expenses.

If the S&P 500 Index depreciates by more than 10%, the ETF aims to return a portion of the Index’s return, limited to a maximum loss of 9% of the capital invested in the ETF, less applicable fees and expenses.

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