Investment firm Calamos has introduced a new risk management strategy for Bitcoin investments aimed at reducing volatility and increasing its appeal to institutional investors.
Overview of Calamos Strategy
On June 7, investment firm Calamos announced its "protected Bitcoin" strategy, designed to limit both downside and upside exposure to Bitcoin. Despite Bitcoin reaching a $2 trillion market cap, institutional investors remain concerned about its volatility.
How the Combination Strategy Works
The strategy involves a mix of Bitcoin futures and U.S. Treasury bonds. Calamos purchases zero-coupon Treasury bonds maturing at the end of the year, which serve as a protective floor in worst-case scenarios. At the same time, the firm buys call options on the Bitcoin Index to capture potential gains, while also selling out-of-the-money options, effectively capping the upside between 25% and 60%.
Benefits and Risks of the New Strategy
Each risk-return tier is benchmarked against familiar asset classes. The 100% protected Bitcoin tier mirrors the risk profile of Treasuries, offering capital preservation with virtually no downside risk. However, traders must hold positions to maturity to fully benefit from the downside protection, as early exits could result in losses. Additionally, there exists a risk of potential sovereign debt default, which the firm notes is highly unlikely.
Calamos' strategy aims to enhance Bitcoin's appeal relative to traditional assets, providing protective mechanisms amid the volatility of the broader market.
