Thesis - tradable?

[misterkel]

BITO started paying out monthly divs of .41~. At 15, that is a 33% div.
That screams undervalued.
Options are obviously tilted toward puts to comp for the dividend downside.
Jan. 25 ATMs

It's actually more tilted than this because it time value is based on bid, not mid. Last price on the 14 puts is 5 v 2.4 in time value on the calls.

However, if BITO sustains that div, then the price should rise to compensate. Prolly target a 10% div.
At 4.8 annual div, that would be a price ~50.

Short version: buy synthetic long leaps / Risk Reversals.

Or just long call leaps OTM.

whadya think?

 

[nitrene]

I read the prospectus but I still don't understand where that huge dividend is coming from? It can't be call writing since there are no calls for BRR future.

 

[Statistical Trader]

BITO is very unlikely to consistently sustain these dividend amounts. The current dividends reflect (generally speaking) the fact BTC has done well YTD (~60%). If BTC goes down, the dividends will shrink or be eliminated.

This isn't to say the dividends can't continue, but them doing so is predicated on strength in BTC, so you need a thesis on BTC in order to have a thesis on BITO dividends.

Have a look at these pages for more info:

https://www.proshares.com/faqs/dividends-in-proshares-crypto-currency-fundsbito
https://www.proshares.com/our-etfs/strategic/bito

Key Quote:
"The monthly dividend is intended to estimate the funds’ current required year-end distribution allocated over the remaining months of the year.

The dividend amount will change each month and may change significantly, or it may go to zero if the subsidiary has had significant recent losses and/or previously paid dividends have already covered the expected required dividend."

BITO Dividends in 2023
Jan: $0.00
Feb: $0.15
Mar: $0.10
Apr: $0.46
May: $0.42
Jun: $0.43

 

[nitrene]

So the payout is a smoothed out year end distribution. It must be lagged since bitcoin peaked a while ago. Ironically BRR futures don't have calls but BITO does, so you could probably write calls on BITO itself.

 

[misterkel]

Okay, the option chain predicts a strong dividend to continue. IF the thesis of dividend declining is correct, then that premium should be theoretically capturable.
In fact, since the payout is pro-rated to current end of year payout, if the price of BTC declines even moderately, then the dividend will overcompensate to adjust for already made payouts.
That would suggest this trade:
Short BITO + synthetic long. Kind of a box trade.

You would capture that fat premium on put side.
You would pay SLB rates on BITO.
You would risk a run in BTC and a rise in dividends and in put premium (this would be immaterial if you let it go to expiry).

NOT a good trade, obviously.