We talk a lot about the idea that you don't have to believe in Bitcoin to potentially benefit from it. We talk about winning by losing less. Those are the right headlines and catchy phrases designed for our audience to remember. This blog post is for the advisors who might be asked to explain “how does it work?” to clients.
The strategy underlying the Fortuna Hedged Bitcoin ETF (HBTC) is built from three components, layered together every month.
Put together, these positions create an "uncapped collar” where the Fund is long the underlying, long a put for protection, short a call spread to help fund it. An uncapped collar is a standard institutional options structure. What's specific to HBTC is that the managers are applying this strategy to Bitcoin each and every month.
This is often the first question we’re asked by curious investors or those familiar with options-trading strategies.
Our response is that Bitcoin's implied volatility runs high, which means options premiums on it run high too. An outright put, bought and simply held, would be a legitimate hedge…but costly to carry month after month. When we shift to a put spread instead (buying a put and selling a lower-strike put against it) the cost might come down, but so does the protection: once Bitcoin falls through that lower strike, the spread stops paying out and losses resume from there. We believe this is the structural problem with buying protection on the cheap – it has a habit of running out right around the point it's needed most.
So HBTC's approach is designed to keep the put outright - so the hedge doesn't have a floor where it quietly stops working - and finance it with a call spread on the other side instead of trimming the put itself. The tradeoff moves to the upside, where we believe giving up some gain is a more tolerable cost than a hedge that disappears mid-crisis.
Every month, the Fortuna portfolio management team rolls the position, because this is not a “set it and forget it” strategy. That roll is where the real judgment is necessary:
Elevated volatility means richer premiums, which changes the math on both legs of the trade. (For example, a month where volatility has calmed down looks different from a month where it's spiking.)
The point of repositioning HBTC on a fixed, systematic monthly cycle - rather than reactively - is to keep the process disciplined and repeatable. We believe this is preferable to making a series of one-off judgment calls, particularly under pressure.
I walked through this trade-off directly in a recent video, using the kind of asymmetry the structure is built to produce: we're participating in most of the upside, but avoiding a considerable percentage of the downside. If Bitcoin is down 50% over the period we're holding this option strategy, HBTC would be down about 10%. If it's up 50%, HBTC would be up around 46%. This is what we mean when we say “we win by losing less.”
This is a hypothetical example and not necessarily the experience of the fund. The performance data quoted represents past performance and is no guarantee of future results. Investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. For standardized fund performance see the fact sheet.
Of course, this specific example is illustrative and meant to show the shape of the trade-off rather than a promised or guaranteed result. HBTC’s actual outcomes depend on where strikes are set, prevailing volatility, and timing, and they'll vary month to month. But the asymmetry it's pointing at (giving up some upside to avoid a disproportionate share of the downside) is the whole design goal of the structure detailed above.
There's a related point I made in that same video that's easy to overlook: the right time to put a hedge on is before a drawdown, not after one. You really want to hedge your position when it's near a high, not necessarily after it's already fallen, because a hedge added after the fact only protects what's left.
HBTC employs three well-understood options positions, layered on top of Bitcoin-related securities, rebalanced on a disciplined monthly schedule, built specifically so the hedge doesn't quietly stop working at the moment it's needed most. There’s no secret sauce or black box - there is a clearly defined process. That's the entire recipe.
If you want to walk through the mechanics in more detail, or see how the strikes have been set in a given month, reach out. We're always excited to get into the specifics.