BITO Bitcoin ETF: 70%+ Yield Combining High Dividends with Option Premium

Introduction: The Dual Income Strategy

Most income investors face a choice between dividend yield and option premium income. Traditional high-dividend stocks often lack the volatility needed to generate attractive option premiums, while volatile stocks suitable for option selling rarely pay meaningful dividends. The ProShares Bitcoin Strategy ETF (BITO) presents a rare opportunity to collect substantial income from both sources simultaneously.

During summer 2024, BITO delivered monthly dividends yielding 76% annualized in July and an extraordinary 90% annualized in June. These exceptional distributions resulted from the ETF's futures-based structure and favorable Bitcoin futures contango conditions. When combined with systematic covered call and cash-secured put premium collection, total returns exceeded 70% annualized from income alone, independent of any stock price appreciation.

This article demonstrates the complete implementation of a dual-income BITO strategy using both biweekly option contracts and single-contract cash-secured puts. You will learn why extending expiration dates from one week to two can triple premium collection, how BITO's monthly dividend payments influence option pricing, and the systematic workflow for managing multiple covered call contracts alongside ongoing put assignments to maximize total income generation.

Income Components: BITO generates income through monthly dividends ($1.50-$1.77 per share representing 76-90% annualized yield during demonstrated period) plus weekly/biweekly option premiums from covered calls and cash-secured puts, creating combined yields exceeding 70% annualized on deployed capital.

Understanding BITO's Exceptional Dividend Yield

BITO is not a traditional Bitcoin ETF that holds actual Bitcoin. Instead, it holds Bitcoin futures contracts, which creates a unique income-generating structure that produces monthly distributions unrelated to Bitcoin's spot price movements.

How Futures-Based Bitcoin ETFs Generate Income

Bitcoin futures markets frequently trade in contango, where longer-dated contracts trade at higher prices than near-term contracts. BITO continuously sells expiring near-term contracts and purchases longer-dated contracts to maintain exposure. When the contango spread is wide, BITO sells low and buys high repeatedly, creating losses that must be distributed to shareholders through reverse capital gain distributions.

Paradoxically, what appears as a structural disadvantage (negative roll yield from contango) transforms into monthly income for shareholders. During periods of steep contango like summer 2024, these monthly distributions can reach extraordinary levels relative to the ETF's net asset value.

Historical BITO Dividend Performance

The demonstration references specific monthly distributions that illustrate BITO's income potential during favorable contango conditions:

Month Distribution Per Share Annualized Yield
July 2024 $1.50 76%
June 2024 $1.77 90%

These yields were calculated based on BITO's trading price around $23-24 during the distribution period. To annualize: ($1.77 × 12 months) / $23.50 share price = 90.3% annualized yield for June's distribution alone.

Important Dividend Considerations

Several critical factors affect BITO dividend income that investors must understand:

  • Variability: Monthly distributions fluctuate significantly based on Bitcoin futures contango levels, which change with market conditions
  • Ex-Dividend Timing: BITO typically pays dividends with ex-dividend dates near the first of each month, requiring share ownership before that date
  • Paper Trading Limitation: The demonstration notes that paper trading accounts do not reflect dividend income, only real money accounts receive actual distributions
  • Tax Treatment: These distributions may be treated as return of capital or capital gains distributions rather than qualified dividends, affecting tax liability

The demonstration explicitly acknowledges trading BITO in both a paper account (for demonstration purposes) and a real money account (where actual dividends are collected). This dual-account approach allows transparent tracking of option mechanics while separately capturing real dividend income.

Historical Context: The 70-90% annualized yields demonstrated occurred during exceptional contango conditions in summer 2024. Future distributions may vary significantly. Review current BITO dividend history before implementing this strategy to set realistic income expectations.

Reviewing the Current BITO Position

The demonstration begins by examining an existing BITO position that had been managed with monthly option contracts but is transitioning back to weekly expirations. This position review establishes the context for understanding cost basis, accumulated shares, and historical premium collection that informs current strategy decisions.

Historical Position Background

The trader reveals this BITO position was established approximately 30 days prior through a cash-secured put assignment at the $24 strike that added 100 shares. After that assignment, both a covered call and another cash-secured put were sold with approximately 30-day expirations.

During that month, the stock price declined significantly, dropping from the mid-$20s down into the low-$20s and even touching $19 briefly. This price decline caused the covered call strike at $29 to move far out of the money, becoming too expensive (in terms of opportunity cost) to maintain as the stock dropped further from the strike.

The trader acknowledges that the ideal approach would have been to roll the covered call down to a lower strike to collect additional premium, but instead chose to let it expire and pause covered call sales until the stock stabilized or began recovering.

Current Position Metrics

After navigating through the broker's transaction history and filtering to show the past 30 days, the demonstration reveals the position consisted of 800 shares before the most recent assignment, built through multiple cash-secured put assignments during the decline from $33 to $19 over several months.

The current cost basis sits at $28.93 per share, representing the average assignment price across all accumulated positions. However, when adjusted for the $2,153 in total premium collected through all option transactions, the effective cost basis drops to $25.62 per share.

With the stock currently trading at $23.54, this creates an unrealized loss on the position. However, the premium collection has reduced the economic loss substantially compared to what it would be without the option income strategy.

Chart Analysis: Understanding the Price Action

The demonstration includes detailed chart analysis across multiple timeframes to contextualize the current position within BITO's recent price history:

One-Year Chart: Shows BITO's full range from a low of $12.79 to a high of $33.79, with the current $23.54 price sitting roughly in the middle. Multiple cash-secured put assignments are marked on the chart, illustrating systematic buying throughout the decline from $33.

90-Day Chart: Reveals more recent volatility with a high of $29 and low of $19.26. The current price sits near the 30-day high, suggesting potential resistance at current levels or possible continuation higher.

30-Day Chart: Shows the immediate price action from the $19 low to $24 high, with current price at $23.54. The trader notes this pattern suggests a potential uptrend developing, though acknowledging the stock remains volatile and unpredictable.

This multi-timeframe analysis establishes context for strike selection decisions: selling covered calls too close to the current price increases assignment risk if an uptrend continues, while selling cash-secured puts at the money provides attractive premium for continued position building during consolidation.

Recording the Cash-Secured Put Transaction

Before analyzing new option opportunities, the demonstration shows the complete workflow for recording the most recent cash-secured put transaction and resulting assignment in the MyATMM cost basis tracking system. This process captures the transaction history needed for accurate cost basis calculation and performance analysis.

Entering the Put Sale Details

The transaction entry begins by clicking to add a new position in MyATMM's cost basis tracker. The interface requires several specific data points from the broker's transaction history:

  • Transaction Date: June 24th (the fill date when the put was sold)
  • Action Type: Sell to Open (establishing a new short put position)
  • Option Type: Put
  • Quantity: 1 contract (representing 100 shares)
  • Expiration Date: July 19th (approximately 25 days at time of sale)
  • Strike Price: $24.00
  • Premium Received: $0.65 per share ($65 total)
  • Commissions: $0.02

After entering these values and clicking save, MyATMM adds this transaction to the proposed records section, showing the $65 premium collected minus $0.02 in fees for a net credit of $64.98. Clicking the save icon moves this transaction from proposed to permanent history.

Recording the Assignment

The cash-secured put expired in the money on July 19th when the stock closed at $23.54, below the $24 strike price. This triggered automatic assignment on Saturday, July 20th, requiring the trader to purchase 100 shares at the $24 strike price.

The demonstration shows this transaction appearing in the broker statement as a stock assignment of 100 shares at $24.00 on July 20th. To record this in MyATMM, the trader enters:

  • Assignment Date: July 20th (Saturday after Friday expiration)
  • Assignment Type: Stock Purchase (as opposed to cash settlement)
  • Shares Acquired: 100
  • Assignment Price: $24.00 per share
  • Total Cost: $2,400
  • Commissions: $0.00 (stock assignments typically have no fees)

After clicking save, this assignment transaction moves to the permanent history and immediately updates the position metrics. The share count increases from 800 to 900 shares, and the average cost basis adjusts to reflect the new 100-share acquisition at $24, which was below the previous $28.93 average and therefore pulls the blended cost basis lower to $28.31.

Updated Position Metrics After Recording

Following the transaction recording, MyATMM displays the updated position status:

Metric Value
Total Shares Owned 900
Total Stock Cost $22,650
Current Market Value $18,000 (at $20 per share)
Unrealized Loss $3,800
Total Premium Collected $2,153
Average Cost Basis $28.31
Cost Basis with Premium $25.62

This comprehensive position view provides the foundation for informed strike selection in the next phase of the strategy.

Covered Call Selection: Why Two Weeks Beats One

With 900 shares now owned, the position supports selling 9 covered call contracts. The demonstration reveals a critical insight about premium collection efficiency: extending expiration from one week to two weeks can triple the premium while only doubling the time commitment, dramatically improving income per day of capital deployment.

Initial Strike Selection at $29

The trader begins by filtering the option chain to display only $29 strikes, which sit above the $28.31 cost basis and therefore represent assignment-safe covered calls. This strike filter simplifies the option chain display, eliminating dozens of irrelevant strikes and focusing attention on the target price level.

However, examination of the $29 strike reveals disappointingly thin premium:

  • 5 days out: $0.06 bid, $0.06 mark (essentially worthless)
  • 12 days out: $0.19 bid, $0.21 mark (triple the 5-day premium)
  • 19 days out: $0.19 bid (doesn't double again, suggesting diminishing returns)

This premium structure demonstrates a key principle: when the two-week premium is double or triple the one-week premium, extending to two weeks generates substantially more income per day of capital deployment.

Switching to $28.50 Strike

After placing the initial order at the $29 strike, the trader realizes that $28.50 strikes are also available and would provide even better premium while still sitting above the cost basis. After checking the option chain and finding $28.50s available, the $29 order is cancelled and replaced with $28.50 strikes.

The $28.50 strike premium shows:

  • 5 days out: $0.08 bid, $0.10 ask, $0.09 mark
  • 12 days out: $0.22 bid, $0.26 ask, $0.24 mark

Again, the two-week expiration offers nearly triple the premium of the one-week, making the extended timeframe far more attractive from an income-per-day perspective.

Why the Ex-Dividend Date Matters

The demonstration reveals an important insight about why the two-week premium is particularly attractive in this case: the two-week expiration includes the ex-dividend date that falls on the first of the month. Since BITO pays monthly dividends with ex-dividend dates near month-end, option premiums for expirations that span the ex-dividend date incorporate some of the expected dividend value.

The trader notes this is why the premium triples rather than merely doubles: option sellers who hold through the ex-dividend date miss the dividend payment (it goes to the stock owner), so the option premium must compensate for that lost dividend. Option buyers, knowing they'll receive the dividend if assigned early, are willing to pay extra for that potential dividend capture.

Final Covered Call Order

The demonstration shows placing an order to sell 8 contracts (covering 800 of the 900 shares) at the $28.50 strike expiring in approximately 12 days:

  • Contracts: 8
  • Strike: $28.50
  • Expiration: Approximately August 2nd (12 days out)
  • Premium Target: $0.24 per share (the mark price)
  • Total Premium: $192 if filled ($0.24 × 100 shares × 8 contracts)

This order is placed as a limit order at the mark price, giving reasonable probability of execution when the market opens while avoiding accepting the lower bid price of $0.22.

Cash-Secured Put Selection: Doubling Premium with Extended Duration

The final component of the weekly workflow involves selling an additional cash-secured put to continue building the BITO position systematically. The same premium-doubling principle observed with covered calls applies here: extending from one week to two weeks more than doubles the premium collected.

Targeting the At-the-Money Strike

With BITO trading at $23.54, the demonstration focuses on the $23.50 strike as the closest at-the-money option. At-the-money strikes typically offer the best premium-to-probability balance, collecting significant time value while maintaining roughly 50% probability of expiring worthless versus being assigned.

The option chain displays the $23.50 put premium as:

  • 1 week out: $0.75 bid, $0.79 ask, $0.77 mark
  • 2 weeks out: $1.78 bid, $1.98 ask, $1.88 mark

The two-week premium of $1.88 represents significantly more than double the one-week $0.77 premium. Specifically, it's 2.44 times higher while only requiring 2 times the duration commitment. This premium structure makes the two-week expiration substantially more attractive from an income-per-day perspective.

Why the Massive Premium Jump?

The demonstration explains that this dramatic premium increase for the two-week expiration results from the upcoming ex-dividend date. Since the two-week expiration spans the ex-dividend date when BITO will pay its monthly distribution, option pricing incorporates the expected dividend value.

For put sellers, this creates an interesting dynamic: you're collecting extra premium that partially represents the dividend you would receive if you owned shares. In effect, the option premium includes compensation for the dividend you're not collecting since you don't yet own the shares (you're only obligated to buy them if assigned).

The trader notes that when trading BITO in a real money account, owning shares generates dividend income on top of the option premium. With 800 shares owned, the upcoming $1.50 per share July dividend would produce $1,200 in dividend income, representing substantial additional return beyond the option premiums being collected.

Final Cash-Secured Put Order

The demonstration shows placing an order to sell one cash-secured put contract:

  • Contracts: 1
  • Strike: $23.50
  • Expiration: Approximately August 2nd (12-14 days out)
  • Premium Target: $1.88 per share (the mark price)
  • Total Premium: $188 if filled ($1.88 × 100 shares)

This order is placed at the $1.88 mark price, positioned between the $1.78 bid and $1.98 ask, providing reasonable fill probability when the market opens.

Premium Efficiency Principle: When the two-week expiration offers more than double the one-week premium, the extended timeframe generates higher income per day of capital deployment. This premium structure frequently occurs around ex-dividend dates as option pricing incorporates expected dividend distributions.

Calculating Total Income: Dividends Plus Option Premium

The power of the BITO dual-income strategy becomes clear when calculating total income from all sources. This section breaks down the complete income picture including dividends, covered call premiums, and cash-secured put premiums to illustrate how the components combine to generate exceptional total returns.

Option Premium Income Breakdown

From the positions demonstrated, the two-week cycle generates option premium from two sources:

Covered Call Income:

  • 8 contracts at $28.50 strike
  • $0.24 per share premium
  • $192 total premium ($0.24 × 100 × 8)
  • 12-day time period
  • $16 per day income rate

Cash-Secured Put Income:

  • 1 contract at $23.50 strike
  • $1.88 per share premium
  • $188 total premium
  • 12-day time period
  • $15.67 per day income rate

Combined Option Income: $380 over 12 days, or approximately $31.67 per day

Dividend Income Component

The demonstration references the exceptional dividend yields BITO generated during the demonstrated period. With 800 shares owned when the ex-dividend date occurs, the monthly dividend produces substantial additional income:

July 2024 Dividend:

  • $1.50 per share distribution
  • 800 shares owned
  • $1,200 total dividend income

June 2024 Dividend (for reference):

  • $1.77 per share distribution
  • 700 shares owned at that time
  • $1,239 total dividend income

These monthly dividend payments represent income entirely separate from the option premium collection strategy. Share owners receive these distributions regardless of whether they sell options, making the combination particularly powerful.

Total Two-Week Income Projection

Assuming both option orders fill as planned and the monthly dividend is received, the two-week cycle generates:

  • Covered call premium: $192
  • Cash-secured put premium: $188
  • Dividend income (prorated): $600 (half of $1,200 monthly)
  • Total two-week income: $980

This $980 income on a position with current market value of approximately $18,800 (800 shares × $23.50) represents 5.2% return in just two weeks, which annualizes to approximately 135% if sustained throughout the year.

Important Return Calculation Notes

Several factors affect these return calculations that readers should understand:

  • Dividend Variability: The 76-90% annualized dividend yields represent exceptionally favorable contango conditions that may not persist
  • Capital at Risk: The cash-secured put requires $2,350 in cash collateral, increasing the capital base and reducing percentage returns
  • Assignment Impact: If assigned on the covered calls, shares are sold at $28.50, realizing a gain that should be included in total return calculations
  • Unrealized Loss Context: The position currently sits at an unrealized loss, so these income numbers offset capital losses rather than representing pure profit

The demonstration explicitly acknowledges that sustaining these return rates over long periods is unlikely due to changing market conditions, dividend fluctuations, and inevitable adjustments required as the position evolves.

Account Reconciliation and Strategy Going Forward

The demonstration concludes by reconciling the paper trading account balance with the MyATMM cost basis tracker to ensure transaction recording accuracy, then discussing the transition back to weekly option expirations for future cycles.

Balance Verification

After recording all transactions in MyATMM, the demonstration shows comparing the account balance in the broker platform against the balance shown in MyATMM's dashboard:

  • Broker Account Balance: $80,528.59
  • MyATMM Dashboard Balance: $80,528.59
  • Status: Perfectly reconciled

This balance matching confirms that all transactions have been recorded accurately with correct premium amounts, commissions, and fees. Maintaining this reconciliation discipline ensures the cost basis calculations remain accurate and provides confidence in the position metrics used for strike selection decisions.

Reviewing Historical Premium Collection

The demonstration includes examining the premium collection history by month to assess how the transition to monthly options affected income generation. MyATMM's premium tracking feature displays monthly totals:

Month Premium Collected Notes
April 2024 ~$1,000 Weekly options
May 2024 ~$1,000 Weekly options
June 2024 $244 Monthly options, very low
July 2024 $350 (projected) Transitioning back to weeklies

The June decline to just $244 in premium collection demonstrates why the trader is transitioning back to weekly or biweekly expirations. The monthly approach reduced the number of premium-collection opportunities, substantially lowering total income despite initially seeming simpler to manage.

Forward Strategy: Flexible Weekly/Biweekly Approach

Going forward, the demonstration establishes a flexible approach rather than rigid weekly or monthly cycles:

  • Default to weekly expirations when one-week premium is attractive relative to capital deployed
  • Extend to two weeks when the two-week premium is double or triple the one-week amount
  • Avoid monthly expirations unless the premium structure strongly favors them (which is rare)
  • Monitor ex-dividend dates and favor expirations that span those dates when dividend-enhanced premiums are available

This flexible approach optimizes income per day of capital deployment while maintaining regular premium collection cycles that compound over time.

Key Strategy Principle: Optimize expiration selection based on premium-per-day rather than using rigid weekly or monthly cycles. When two-week premiums more than double one-week premiums, the extended timeframe generates superior income efficiency.

Implementation Considerations for Your Portfolio

While the demonstrated BITO strategy generated exceptional income during summer 2024, implementing this approach requires understanding several important considerations that affect its suitability for different investor profiles and market conditions.

Capital Requirements

The full strategy as demonstrated requires substantial capital deployment:

  • Stock ownership: 800-900 shares at $23-24 = approximately $20,000
  • Cash-secured put collateral: $2,350 per contract (more if selling multiple contracts)
  • Margin considerations: Some brokers may allow portfolio margin to reduce capital requirements
  • Total capital: Approximately $22,000-$25,000 for the demonstrated position size

Investors with smaller accounts can scale the strategy proportionally, perhaps starting with 100 shares and one covered call contract, then building position size over time through cash-secured put assignments.

Dividend Sustainability Questions

The exceptional 76-90% annualized dividend yields demonstrated cannot be assumed to continue indefinitely. Several factors affect BITO's dividend generation:

  • Contango conditions: Distributions depend on Bitcoin futures market structure, which changes with market conditions
  • Historical variability: Past BITO dividends have ranged from zero in some months to over $1.50 in others
  • Backwardation risk: If Bitcoin futures move into backwardation (near-term higher than long-term), distributions may decrease or disappear
  • ETF structure: The ProShares Bitcoin Strategy ETF prospectus does not guarantee any specific distribution level

Investors should research current BITO dividend history and Bitcoin futures market conditions before assuming dividend income will match the demonstrated levels.

Volatility and Assignment Risk

BITO's volatility creates both opportunity (higher option premiums) and risk (frequent assignments and rapid price movements):

  • Price swings: The demonstration shows BITO trading from $12.79 to $33.79 over one year, representing extreme volatility
  • Assignment frequency: At-the-money cash-secured puts will result in frequent assignments during downtrends
  • Capital commitment: Systematic assignments build large positions that may experience significant unrealized losses
  • Exit strategy: Consider in advance how you will reduce position size if it grows larger than desired

Tax Implications

The dual-income BITO strategy generates multiple tax events that increase reporting complexity:

  • Dividend treatment: BITO distributions may be return of capital or capital gains distributions rather than qualified dividends
  • Short-term capital gains: Weekly option expirations generate numerous short-term trades
  • Wash sale considerations: Buying and selling BITO shares repeatedly may trigger wash sale rules
  • Professional advice: Consult a tax professional familiar with options and ETF distributions

Account Type Suitability

Different account types have varying suitability for this strategy:

  • Taxable accounts: Tax complexity may be significant; dividend treatment may be favorable compared to ordinary income
  • Traditional IRA: Eliminates annual tax reporting complexity; all income compounds tax-deferred
  • Roth IRA: Ideal for high-income strategies if you have option approval; all income is tax-free if rules are followed
  • Paper trading: Does not reflect dividend income; use only for learning option mechanics

Key Takeaways: Dual-Income BITO Strategy

The BITO Bitcoin ETF presents a unique opportunity to generate income from both exceptional monthly dividends and systematic option premium collection. The strategy demonstrated combines these income sources to achieve total yields exceeding 70% annualized during favorable market conditions.

Core Strategy Components

  1. Covered calls on owned shares - Sell 8-9 contracts at strikes above cost basis, targeting biweekly expirations when premiums more than double weekly amounts
  2. Cash-secured puts for position building - Sell at-the-money puts to systematically acquire additional shares, extending to two weeks when premiums justify the longer commitment
  3. Dividend collection on owned shares - Hold shares through ex-dividend dates to capture monthly distributions that historically ranged from $1.50-$1.77 per share during demonstrated period
  4. Systematic transaction tracking - Record all option sales, assignments, and expirations to maintain accurate premium-adjusted cost basis
  5. Flexible expiration selection - Choose weekly, biweekly, or monthly expirations based on premium-per-day efficiency rather than rigid cycles

Critical Success Factors

  • Recognize when two-week premiums justify extended timeframes (typically around ex-dividend dates)
  • Maintain cost basis tracking that incorporates all premium collected to inform strike selection
  • Accept cash-secured put assignments as opportunities to build position size at predetermined prices
  • Monitor BITO's current dividend history to set realistic income expectations
  • Reconcile broker balances with tracking software regularly to ensure accuracy

When This Strategy Works Best

The dual-income BITO approach generates optimal results when:

  • Bitcoin futures markets are in steep contango, generating high monthly BITO distributions
  • Option premiums remain elevated due to Bitcoin volatility
  • You have sufficient capital to deploy $20,000-$25,000 in this single position
  • You can monitor positions regularly and adjust strikes as market conditions change
  • You have the discipline to continue executing the strategy through unrealized losses

Realistic Expectations

While the demonstration showed exceptional income generation, investors should maintain realistic expectations:

  • The 76-90% annualized dividend yields occurred during unusual contango conditions that may not repeat
  • Future BITO dividends may be substantially lower or even zero in some months
  • Option premiums fluctuate with Bitcoin volatility and may decrease during calm market periods
  • Systematic put assignments build positions that may experience significant unrealized losses
  • Total returns depend on eventually exiting positions at favorable prices, not just income collection

Risk Disclaimer

BITO is subject to substantial risks including Bitcoin price volatility, futures market risk, contango and backwardation effects, tracking error, regulatory risk, and the risk of total loss. Bitcoin prices can decline rapidly and dramatically, potentially resulting in significant losses that exceed the premium income collected.

Options trading involves significant risk and is not suitable for all investors. Selling cash-secured puts obligates you to purchase shares at the strike price regardless of how far the stock declines. Covered calls cap upside potential and provide only limited downside protection equal to the premium received.

The dividend yields demonstrated (76-90% annualized) occurred during exceptional Bitcoin futures contango conditions in summer 2024. Future BITO distributions may be substantially lower or zero. Historical distributions do not predict or guarantee future distribution levels.

Cost basis tracking software provides data organization tools but does not constitute investment advice or recommendations. Past performance of any strategy, including premium and dividend income shown, does not guarantee future results. All trading decisions remain your sole responsibility.

This content is for educational purposes only and should not be considered financial advice or a recommendation to trade BITO or implement any particular strategy. Always consult with a qualified financial advisor before making investment decisions.

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Original Content by MyATMM Research Team | Published: July 21, 2024 | Educational Use Only