Leveraged Indexes - BTC Index w/ Call Options

Everyone wants leveraged returns, but unleveraged downside. When you look at Grayscale Bitcoin Trust, it is a closed end structure charging 2% annual fees. What if we created a Bitcoin Index that charged a 4% annual fee, but used the fee to purchase call options on BTC. When you look at the long-term annual returns of Bitcoina 4% annual fee is not that high. Now, we would take .4% for profit to accrue to NDX holders and those that stake the index and the remaining 3.6% would be used to purchase options contracts every 3 weeks.

Monthly, it works out to use .3% and use those fee amounts to purchase call options on BTC or WBTC. The resulting profits would be used to purchase underlying shares of the index and distribute them to index holders.

I am working on a model to show the potential for returns, which is somewhat difficult as we don’t have option premiums to model back to Bitcoin pricing info. We can assume an option premium rate with HEGIC or ROOM to name a few and extrapolate out what they could be in the future.

After my initial research and understanding options somewhat, I went with a 3 week performance period as that is available on HEGIC now. Of the 136 weeks (I used BTC daily price data back to 4/28/2013) that I modeled and had price history for BTC 49 of the 3 week periods would have had a BTC move about 10%.

61 of the 136 periods would have had a 5% move or greater in the underlying price of BTC. I am now working on modeling out what the options costs would be and the expected option return for those price moves.

Let me know if this is of interest to you, I will share more data when I have it. Also, open to anyone that has experience modeling BTC options, premiums or has those types of datasets. I think this index would also be good because it would force partnership/integration with an options platform which could bring more eyeballs, dollars, awareness and devs to indexed.finance platform.

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