How does BlackRock's new ETF generate income from options?

Recently, the world’s largest asset management firm BlackRock submitted a new ETF product proposal—iShares Bitcoin Premium Income. The core idea behind this fund is simple: to generate stable income by selling Bitcoin options, seeking profit opportunities amid crypto market volatility.

Options Selling Strategy: Using 25-35% of Assets to Exchange for Stable Income

The fund’s operational logic is based on a bold strategy. BlackRock plans to sell call options on 25-35% of its Bitcoin ETF holdings. In simple terms, it “rents out” the upside potential of part of its holdings to options buyers in exchange for immediate option premium income. This approach, known in traditional finance as a “covered call” strategy, can effectively enhance the fund’s yield.

NS3.AI’s analysis indicates that this strategy aims to convert Bitcoin’s market volatility into tangible income distribution. The greater the market volatility, the higher the premium options buyers are willing to pay, resulting in more substantial income for the fund.

How Falling Volatility Affects Income: Risks Investors Need to Watch

However, behind this seemingly perfect income plan lie two shadows. First is the opportunity cost issue. When Bitcoin’s price rises above the strike price, the fund will be forced to close part of its position, losing potential future gains. Investors may receive the option premium income but miss out on the continued appreciation of Bitcoin.

Deeper risks stem from volatility itself. Once the market enters a low-volatility range, the value of options declines, and the premiums collected by BlackRock shrink accordingly. At that point, the fund’s income source will significantly decrease, posing a challenge for investors seeking stable income.

Experts particularly point out that when the entire market adopts similar options selling strategies, large-scale inflows into call options can create systemic pressure on the market. This may lead to persistent “pushing down” of option premiums, causing retail investors to get caught in the trap during Bitcoin’s upward trend due to income pursuits, preventing them from enjoying the benefits of rising prices. For retail investors expecting stable income from this ETF, this is undoubtedly a hidden trap.