Summary The iShares Bitcoin Trust (IBIT) offers a traditional ETF wrapper for Bitcoin, allowing investors to generate consistent income through covered calls due to its high implied volatility. Selling IBIT covered calls can yield high premiums, with a rolling strategy ensuring continuous income and mitigating risks from Bitcoin's volatility. Combining covered calls with put selling can further enhance returns, leveraging both upside and downside market movements while managing risk. IBIT's high IV and Bitcoin's long-term potential make this strategy appealing for those comfortable with volatility and seeking income from their IBIT holdings. The iShares Bitcoin Trust ( IBIT ) has emerged as a popular vehicle for investors seeking exposure to Bitcoin (BTC-USD) in a traditional ETF wrapper. Real BTC cannot be held in a brokerage account as a marginable security that contributes to options and futures buying power. IBIT does not have this problem. But beyond simply holding IBIT, investors can use it as a vehicle to generate consistent income by selling options. With Bitcoin’s higher implied volatility driving higher IBIT option premiums, IBIT covered calls can deliver high consistent income. I’ll discuss IBIT covered calls and some timing/ laddering strategies to maximize exposure and diversify entry points. Covered Calls and Why IBIT Shines A covered call is a straightforward options strategy where you sell a call option on a stock or ETF that you already own. Here’s how it works: for every 100 shares of IBIT you hold, you can sell one call option, collecting a premium upfront. In return, you agree to sell your shares at the option’s strike price if IBIT’s price exceeds that level by the expiration date. If IBIT’s price stays below the strike price after the call option expires, you keep the shares and the premium. In most cases, you would sell OTM calls, where the strike price is higher than the spot price. This strategy works particularly well in markets that are stable or trending slightly upward. It allows you to generate income while holding an asset you believe in for the long term. What makes IBIT especially attractive for this strategy is its high implied volatility. IV reflects the market’s expectation of how much the underlying asset might move in the future, and higher IV leads to larger option premiums, which means more cash you receive as an option seller. The higher IV makes IBIT a superior candidate for generating income through covered calls. We can easily see an example of this. Let’s take a look at calls which expire at the same time for three different assets: IBIT, SPY, TLT. You will notice that these are sorted highest to lowest IV. (Also note that in general, there really isn't a point in comparing with other underlying assets beyond SPY, TLT, QQQ, GLD, SLV, since these have the most liquid options and they aren't highly correlated with each other. Importantly, they all have significantly lower IVs than IBIT and BTC. I don't present QQQ here because it is very similar to SPY and I just want to illustrate differences in IV profiles.) Look at the options and divide the option price by the price of the underlying. That is effectively the “yield” you get for renting out possible upside exposure to your shares. IBIT 49 DTE (TastyTrade) IBIT ATM calls are $450. 100 shares is $5374. “Yield” is 8.37%. SPY 49 DTE (TastyTrade) SPY ATM calls are $1514. 100 shares is $58,098. “Yield” is 2.6%. TLT 49 DTE (TastyTrade) TLT ATM calls are $191. 100 shares is $8559. “Yield” is 2.23%. It is clear that higher volatility gives a higher “yield” from selling options. This pattern persists for all options, as long as you hold % OTM and expiration equal. In volatile market conditions, the only changes are higher volatility and higher correlations across all assets. But volatility in these market conditions will tend to move higher monotonically. If IBIT has the highest IV, it will usually still have highest IV even during a time when all assets are selling off. So selling IBIT calls will still be the covered calls with the biggest yields. Earn Big Yields Selling IBIT Covered Calls From the option chain and current prices: IBIT trades at $54, and selling a 20%-OTM call (65 strike price) expiring in 28 days gives $65 in option premium. For every 100 shares, you’d collect $65, or 1.2% of the $5400 position, by committing your shares for 28 days. Multiply this by 13, which is the number of 28-day periods in a year, and the annualized return is over 15%, assuming consistent premiums. IBIT 28 DTE (TastyTrade) These are good returns, especially considering that they’re additive to any appreciation in the IBIT shares below the strike price. However, as noted earlier, there’s a cap on your upside, and the potential for downside losses remains. Still, for those comfortable with IBIT’s volatility, the income potential makes this strategy highly appealing. It’s also trivial to sell at lower strikes to increase the premium received upfront. For instance, the premium received selling the 10% OTM strike (59.5 strike price) would be $154, which is a yield of 2.85% and annualized of 37%. A Rolling Plan for Consistent Income To maximize returns while minimizing path dependency, you can implement a rolling covered call strategy on multiples of 100 shares. Let’s assume you hold 400 IBIT shares. Here’s how the plan works: Each Friday, sell one covered call expiring four weeks later. Sell 20% OTM. This one call is collateralized by 100 shares and does not subtract from portfolio margin. This creates a staggered portfolio of four contracts, each expiring seven days apart. For example: Week 1: Sell Call 1 expiring in 28 days. Week 2: Sell Call 2 expiring in 28 days. Now Call 1 expires in 21 days. Week 3: Sell Call 3 expiring in 28 days. Now Call 2 expires in 21 days and Call 1 expires in 14 days. Week 4: Sell Call 4 expiring in 28 days. Now Call 3 expires in 21 days, Call 2 expires in 14 days, and Call 1 expires in 7 days. Week 5: Call 1 expires. Sell a new Call 5 expiring in 28 days. Now Call 4 expires in 21 days, Call 3 expires in 14 days, and Call 2 expires in 7 days. As the first contract expires, write a new one with an updated strike price based on IBIT’s current level. If IBIT rises, sell calls at higher strikes; if it falls, sell calls at lower strikes. Each time, you sell calls that are 20% OTM (or whatever percent you want). This rolling strategy ensures you always have calls expiring weekly and all of your shares are “employed” in covered calls. By spreading out the entrances, you maximize income while reducing the risk of the underlying blowing through all of your strike prices. What if you have 800 shares? You can stagger it even more by selling calls on Tuesday and Friday. In this case, perhaps on Tuesdays you will sell a call option that expires at the same time as the call option you sold last Friday (although its strike price would be different if IBIT has moved). Lastly, you can adjust the plan based on what you think will happen. Maybe you think BTC will go much higher over the next month, so you sell 40% OTM or skip selling altogether. Maybe you think BTC will fall, so you sell only 5% OTM. You can even sell ITM calls to hedge against a drop in BTC. This flexibility is based entirely on what you think is going to happen. If you have no wish to try to time the market, you can just systematically sell the same percentage OTM each week. Reinvesting Income for Long-Term Growth What you do with the income from selling calls (and potentially puts) depends on your investment goals. For those seeking cash flow, the premiums can be withdrawn as regular income (but remember to have that cash pile in case you need to buy back options). This is especially valuable for retirees or those looking to supplement their earnings. Alternatively, if you don’t need the cash, reinvesting the income can create compounding growth. You can use the premiums to buy additional IBIT shares, gradually increasing your position and creating future covered call potential. Another possibility is to diversify by reallocating the income into other assets. Bitcoin And Covered Call Risk The obvious risk with IBIT is you accepting the risk of Bitcoin. I’ve written many articles on Bitcoin, all consistently bullish. You can find them here. Bitcoin is obviously very volatile and this is something you as a holder must be okay with. But if you are looking for some income and can stomach volatility, then an allocation to IBIT with covered calls could be right for you. Here are the two primary covered call risks: Upside Risk : The trade-off is that your upside is capped. If IBIT’s price surges beyond the strike price, you must sell your shares at the agreed-upon strike, potentially missing out on further gains. The other possibility is you buy back the option contract, which could cost more than the premium you received for selling it. This would mean a loss on the options trade. In general, it is always better to buy back the contract because you realize a capital loss and can use that as a tax writeoff. If you instead wait until the contract is exercised, you will likely be selling your shares at a profit and therefore create a tax liability. Downside Risk : If IBIT’s price declines, you still retain ownership of your shares and incur the corresponding unrealized losses. However, the premium collected from selling the call provides a small cushion to offset some of the decline. For example, if you collected a 1% premium on IBIT and its price falls by 5%, your effective loss would be reduced to 4%. While this doesn’t eliminate the risk of holding the asset, the premium serves as partial compensation for your willingness to take on that risk. There is also the tax consideration. When you sell a covered call, the premium you receive is considered a short-term capital gain, regardless of how long you've held the underlying shares. If the option expires worthless, the premium is fully taxable as short-term income in the year it expires. If you buy back the option before expiration at a loss, the difference between the premium received and the repurchase cost can be used to offset other capital gains, potentially reducing your overall tax liability. However, if the call is exercised and you sell your shares, the premium is added to the sale price of the shares, potentially affecting your overall gain or loss calculation. Again, it is nearly always better to buy back a covered call at a loss than to have shares get called away, especially if the shares will be sold at a gain. It’s important to maintain a small pool of cash specifically for buying back calls if IBIT rallies too high. To determine the size of this reserve, consider setting aside enough cash to cover at least 10x the premium initially received for each contract . This ensures you have the flexibility to manage risk without being forced into an unfavorable position during sharp price movements (such as selling shares). Using stop losses in tandem with this cash reserve is an effective way to limit potential losses. For example, if the call premium rises to 3x its original value, having the cash ready allows you to buy it back and cut losses, avoiding further downside. While this approach may slightly reduce your effective yield, it provides essential risk management to ensure the strategy remains sustainable over the long term. The Bottom Line IBIT’s high IV makes it great for a covered call strategy. By selling in tranches of rolling expiries, and by considering complementary tactics selling puts, investors can generate pretty consistent high income. For those who believe in Bitcoin’s long-term potential and want to maximize the value of their IBIT holdings, this strategy offers a compelling way to enhance returns.