Summary Ethereum offers high long-term reward potential, but I am mostly neutral for the short-term, because it seems to be in a consolidation pattern. ETHU's daily 2x leverage leads to massive long-term underperformance versus spot ETH, due to contango, volatility and high fees. A high-reward, lower-risk options strategy is proposed: sell a high-IV short-term Call and buy a lower-IV long-term Call, with ~5.7x max reward/max risk ratio. The strategy will incur losses with ETHU under ~$96-$112, but even in this case we call roll it forward for an overall profit, considering a bullish mid-to-long term outlook. Article Thesis “A compelling reward-to-risk ratio”, does not mean zero risk, or even very low risk. There is risk on the downside, which I will detail below, so if you think that Ethereum is doomed and it will go to zero, then maybe this strategy is not for you. It just means what a ratio suggests: that the potential reward is much higher than the potential risk. This wouldn't be possible if we just owned ethers or shares in an Ethereum ETF. For example, I recently wrote about Fidelity Ethereum Fund ETF ( FETH ), where I described my mid-to-long term bullish perspective on Ethereum. However, short-term I am mostly neutral, which makes a covered Call strategy a better fit, because it caps upside to ~46% in a bit more than five months, for ~14% downside protection. This is a simple strategy, yet we can have a much higher reward, combined with even better downside protection if we know where to look. For this, we have to enter the world of more complex strategies: leveraged ETFs and combined options. For investors without knowledge about options, I strongly suggest you read my presentation below about 2x Ether ETF ( ETHU ), it’s very important to stay away from these leveraged ETFs in the mid-to-long term, even if you are bullish. For investors interested in options, let’s see how we can simultaneously have much higher ROI and better downside protection than a covered Call, and the following strategy is not the most complex possible. However, if you are not familiar with this particular strategy, I suggest you test it first in a demo account for about one year. The Case For Ethereum In my article about FETH, I detailed why I am mid-to-long term bullish on Ethereum, so I just want to summarize it here: Ethereum is the second cryptocurrency by market cap after Bitcoin, with ~13% market share, which makes it attractive for the broader market, proven by the recently approved ETFs. Ethereum has a dual role, store of value and smart contracts platform, while Bitcoin is mostly store of value. It is estimated that the smart contracts market, led by Ethereum, will grow at ~24% CAGR though 2032, with other sources offering close estimates. Its Proof-of-Stake transaction validation method makes Ethereum vastly more energy efficient than Bitcoin, ~99.9% reduction in energy consumption per transaction. There is an apparent disadvantage, that there is no upper limit to the amount of ETH that can exist. However, the transition to Proof-of-Stake, and the introduction of an upgrade, called EIP-1559, led to a relatively constant Ether supply in the last two years. However, I am mostly neutral on Ethereum for the short-term, because it seems to be in a consolidation pattern, with the price oscillating in a horizontal channel in the last two months. But maybe even more important than this short-term technical pressure, the mid-to-long term bullish outlook does not come without risks, especially with numerous security attacks, both on smart contracts and on Ethereum wallets. And for this reason, I think it’s important to keep the position limited, and maybe another reason to look for a neutral-to-bullish strategy with potentially very high reward though options. What Is ETHU And Reasons For Its Massive Underperformance ETHU is a leveraged Ether-linked ETF that seeks to provide daily investment results, before fees and expenses, that correspond generally to twice the performance of Ether for a single day. And total annual fees of ~2.67% are not at all shy. But the key word here is “daily” performance. Long-term performance can be vastly different, there is a huge gap even in performance for the last year, with ETH-USD advancing ~88.8%, and ETHU underperforming: Figure 1: ETHU vs ETH-USD (Seeking Alpha) There are several reasons for this: Contango: ETHU’s strategy involves rolling some future contracts, and Ether futures contracts have historically been in contango. When rolling futures contracts that are in contango, long positions are closed by selling the shorter-term contract at a relatively lower price and buying a longer-dated contract at a relatively higher price. Compound: if an underlying is constantly moving up, the effect of compound acts in favour of a leveraged ETF. For example, after 10 days of growing by 2%, Ether would increase by 21.9%, but ETHU (with 4% growth per day) would increase by 48%, significantly more than double (look at the period November-December 2024 in Figure #8). The same in the other direction, look at the period December 2024 – February 2025 in Figure #8. Volatility: the higher the movements up and down of the underlying, the worse the long-term results for a leveraged ETF. For example, if Ether fluctuates up and down 5%, then up and down again 5% for four days, then ETHU would lose ~2% at the end of the four days. But if we replace 5% with 10% daily fluctuation for the underlying, then ETHU would lose ~8% after four days, significantly more than double. Look at the period from July 2025 until today in Figure #8. And while compound can act in both directions, contango and volatility act in a single direction: down! If we look at Figure #1 again, we see that ETHU under-performed its underlying even for a one-year period, despite Ether being up, so we could have expected at least an over-performance from ETHU if not a double. You can imagine what can happen in 5 or 10 years. That’s why it’s very important to stay away from these leveraged ETFs, even if you are bullish on Ethereum. If you are very bullish on Ethereum, you should seek leverage through options on normal ETFs, like FETH mentioned in the introduction. For example, you can buy a very deep ITM (In-The-Money) Call option with low extrinsic value or transform it into a Call Spread by selling a very deep OTM (Out-of-The-Money) Call option, which will completely neutralize the extrinsic value. But I am not that bullish, I mentioned that short-term I am even more neutral than bullish. That’s why I want as much leverage as possible around the current price, with profit on the upside as high as possible, and with downside protection. A Strategy With A Very High Reward-To-Risk Ratio The place where we need to look for this setup is IV (Implied Volatility). If a normal ETF on Ethereum has a very high IV, due to high uncertainties related to its underlying, especially in the short-term, then a leveraged ETF has a huge IV. And when IV is huge, I immediately think about selling options, because the collected premium is also huge. However, selling options brings potential unlimited losses, for example on the upside when selling a Call option. We can instantly transform this to a limited loss strategy by buying another Call option, for a longer expiration, because its extrinsic value will decline much slower. Let’s compare IV for some expiration dates and strike prices: Figure 2: ETHU IV Smile Graph (Market Chameleon) We can see a very high IV for the May’26 expiration, and this is good because I would like to sell that, and a lower IV for the more distant Jan’27 expiration, and this is good because I would like to buy that. Then, I see IV declining for very far OTM options for Jan’27, therefore I like to buy the 280 Call Jan’27, the lowest IV. Then, I could sell a 255 Call May’26, which has a very high IV, for a spread of $25 between the two options: Buy ETHU 280 Call Jan’27 for $4761 debit Sell ETHU 255 Call Mar’26 for $3536 credit Let’s see how this position, which I opened today, will look at and before the March expiration: Figure 3: ETHU Diagonal Call (Options Profit Calculator) On the upside, both options will be ITM, but while our short Call will have zero extrinsic value in March, our long 280 Jan’27 Call will still have plenty of extrinsic value, even with ETHU at $1000 (and a 6.6 bagger is a very unlikely case in March even for this leveraged ETF), due to its huge IV. Therefore, the cost of this strategy is its maximum risk, or the cash that I need to set aside, plus the paid premium: Maximum risk on the upside = $2500 (spread between strikes with both options ITM and with zero extrinsic value) – Extrinsic Value of the long 280 Call Jan’27 in March at an extremely unfavourable price, which is just an estimate) + $1225 (entry premium) = $2783, as estimated by Options Profit Calculator (see Figure #3). I think it should be lower than that, because that Extrinsic Value of the long 280 Call could be quite high even with ETHU at $1000, with this huge IV and even more (since it went from $150 to $1000, why not back?). But let’s stick with this cost of $2783. Maximum risk on the downside = entry premium that I paid ($1225, or about 44%), because with ETHU at $0, both options will be worthless. Maximum return (at expiration): $6971 (or 250.5%, or 551% annualized) with ETHU at $255, because the short 255 Call will expire worthless in March, while the long 280 Call Jan’27 is very close to ATM (At-The-Money), with a lot of extrinsic value. This is an impressive Max Reward / Max Downside Risk = ~5.7x. Range with more than 100% return : ETHU between ~$180 and ~$430, which is a generous range. Profitability range : ETHU between ~$112.7 and ~$671, although I mentioned before that the upper limit could be higher due a very huge IV and even more at those very high prices. A Slightly Optimistic Scenario Now, let’s look again at Figure #2, and we can observe that IV for the Jan’27 expiration (14-15 months away) is about 20%-22% higher than for the May’26 expiration, which is about 5 and a half months from now. In March, our Jan’27 expiration will be 10 months away, so we can naturally expect IV to be higher, maybe not by 20%, but by ~15%. Let’s see what happens with our position with this 15% increase in IV: Figure #4: ETHU Diagonal Call With Higher IV (Options Profit Calculator) It’s normal to be even better, because the higher the IV in March, the higher I can sell my Jan’27 Call: Maximum risk on the downside = 41.6%. Maximum return = 295% (or 648% annualized) with ETHU at $255. Range with more than 100% return : ETHU between ~$160 and ~$525, an even more generous range. Profitability range : ETHU between ~$96 and $874, but again, this upper limit might be pessimistic. Position and Risk Management First, the risk on the upside is negligible. Not only that profitability is estimated for ETHU below $671 (or below $871 with higher IV), but remember contango, high volatility, high fees? All of these act against ETHU’s price, even for five and a half months. Even more, if I observe a huge rally, I can close the position before expiration. For example, suppose ETHU is at ~$530 on February 13, I can close my position for a remarkable ~100% return with higher IV (see Figure #4) in ~4 months, or even for a healthy ~50% with the same IV (see Figure #3), to avoid a situation with ETHU above $800. However, the risk on the downside is real, even if much lower than the possible reward. Take a look at Figure #1 again, with ETHU plummeting from ~$245 in December’24 to ~$23 in April’25, due to a sustained down movement in Ethereum, combined with the effects of volatility, compound and contango. Therefore, the break-even of ~$96-$112 can be easily broken, and that’s why this strategy is only for a mid-to-long term bullish outlook. Short-term does not matter too much. If ETHU will go under $100 in March and we will be at a loss, we can repeat the strategy with lower strike prices, in order to get a lower break-even. Due to this very high Reward / Risk ratio, even a relatively moderate profit in this second iteration would be enough to compensate the loss from the first iteration. Or, if ETHU will plummet at $23 again (like in April), I could go with a more aggressive strategy, like buying a Call option, which should bring tremendous leverage. Of course, only after re-assessing the mid-to-long term case, because I was mentioning that this bullish mid-to-long term outlook does not come without risks, like security or regulatory risks. If a large downward move is associated with fundamental risks and not just a market whim, I could take a permanent loss close to 40% (see Figure #3). That's why I keep my overall Ethereum exposure lower than 4% weight in my portfolio, which is about a normal sized position in my portfolio. I start with ~2%, I trim if it grows above 4%, and I balance the position: An older long Ethereum position opened about five years ago. I trimmed it when it grew too much, and now I am trimming it again to ~1%, to make room for this options strategy. I keep it because it has unlimited upside. The options strategy presented in this article for ~1%-1.5% weight. Then, of course that we can also imagine a slightly pessimistic scenario with lower IV in March, although this is highly unlikely if we look at Figure #2. However, a problem could be the relatively low liquidity for these options, with relatively wide bid-ask spreads. This could worsen a little bit all the metrics from the base-case scenario, maybe by 2%-3% (for example maximum return of ~$6800 instead of $6971, or break-even at $115 instead of $112.7), which is not a very big concern. Takeaway I am mid-to-long term bullish on Ethereum, due to its large market cap, smart contracts platform and vast reduction of energy consumption versus Bitcoin. However, I am mostly neutral for the short-term, because it seems to be in a consolidation pattern. ETHU is leveraged ETF on Ethereum and its daily 2x leverage leads to massive mid-to-long-term underperformance versus spot ETH, due to contango, volatility and high fees. Besides an older long position on Ethereum, I'm initiating a high-reward, lower-risk options strategy: short a high-IV 255 Call Mar'25 and long a lower-IV 280 Call Jan'27. The strategy offers ~5.7x max reward/max risk ratio, and profitability range for ETHU between ~$112.7 and ~$671, or even broader with slightly higher IV at the first expiration in March. The strategy will incur losses with ETHU under $96-$112.7 (depending on the IV), but even in this case we can roll it forward, with lower strike prices and a lower break-even, for an overall profit, considering a bullish mid-to-long term outlook.