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- [00:00]
Michael Batnik
Today's Animal Spirits Talk. Your book is brought to you by Calamos. Go to Calamos.com to learn about the Calamos Bitcoin Structured All Protection ETF. Brand new ETF just came out. Calamos.com to learn more. Welcome to Animal Spirits, a show about markets, life and investing. Join Michael Batnik and Ben Carlson as they talk about what they're reading, writing and watching. All opinions expressed by Michael and Ben are solely their own opinion and do not reflect the opinion of Ritholtz Wealth Management.
- [00:30]
Ben Carlson
This podcast is for informational purposes only.
- [00:32]
Michael Batnik
And should not be relied upon for any investment decisions. Clients of Ritholtz Wealth Management may maintain.
- [00:38]
Ben Carlson
Positions in the securities discussed in this podcast.
- [00:44]
Michael Batnik
Welcome to Animal Spirits with Michael and Ben. Michael, when we come into these Talk youk books, we will do some pre studying on the fund or the strategy or the idea or the people. And every once in a while we'll have a powwow and discuss what are we gonna do here, right?
- [01:02]
Matt Kaufman
You know, our memes, the Winnie the PO studying pre research.
- [01:08]
Michael Batnik
Oh, there you go. And Calamos has this brand new bitcoin protection etf. And you guys, we've talked a lot about protection, floor ceiling ETFs for the past few years. A place where we have been rightly bullish that people are going to want these sort of defined outcome however you explain them ETFs. And this one came out and I saw a bunch of stories this week and people on social media talking and going, who is this for? Right. Because it's, it's full protection to the downside. If bitcoin goes down, you do not lose money. 100% protection and 11% and change upside. And a bunch of people said bitcoin is this asset going to the moon. It's huge, huge returns going up. Why would you want this? And the idea here, which Matt Kaufman from Calmos quickly told us, no, don't think of it as necessarily a bitcoin strategy. Think of it as an option strategy or a cash like strategy. A way to equitize different asset classes. Cash, fixed income, high yield, maybe. And I got to say this, this is a very interesting strategy. It's kind of hard to wrap your head around that this stuff is available for anyone to buy these days.
- [02:20]
Matt Kaufman
Yeah, I don't want to step too much on the show because we got to all of this. So let's just, you know, with no further ado. Is that what they say?
- [02:27]
Michael Batnik
Yes. So Matt Kaufman, who is the SVP and head of ETFs at Calamos did a really good job of explaining this to us. And I think five minutes in you can hear the light bulb go off over both of our heads. Like ah, we kind of get this. All right, so we'll, it's listen, these are the kind of strategies that are not for everyone. They are definitely circumstantial and depend on your understanding of them. But I think we did a good job of, or Matt did a good job of explaining it in this talk. So here's our talk with Matt Coffin from Calmos. Matt, last time we had you on the show we discussed downside protection equity linked funds, wanted to get an update on those. And I think that's going to kind of color the conversation today on the bitcoin thing. So I'm just curious how people are using those. Are those mostly financial advisor driven? Take it any way you want.
- [03:18]
Ben Carlson
Yeah, I appreciate it. Thanks for having me. So last May I think we were on, we were talking about our structured protection ETF series. They were all tied to equity markets like the S&P 500, Russell 2000, NASDAQ 100. You could get the upside of those markets with no downside risk over a one year outcome period. We're really replicating and disrupting that capital protected structured note space. The fixed indexed annuities index CDs were all delivering similar type upsides. So now you can get that in the ETF world where you've got liquidity transparency, 69 basis point expense ratio there.
- [03:55]
Matt Kaufman
Nice.
- [03:56]
Ben Carlson
So that's, yeah, that's going well. We've raised over 600 million in assets, have come in about 100 million a month on average here. So we're seeing a lot of adoption and uptake on that. We're seeing people tie their cash to the equity markets now, you know, being.
- [04:11]
Matt Kaufman
What do you mean by that?
- [04:12]
Ben Carlson
Yeah, so you think about cash on the sidelines. If there's, you know, there's stats out there of multiple trillions of dollars in money market funds or index CDs, capital protected notes. So people are moving that money into capital protected equity growth now. You know, think about what you could get from a risk free rate product. You might get 4% today, four and a half percent. All of those products expire and at expiration you pay ordinary income tax rates. Well, when we do it inside the etf, we can use equity options that are European style so we won't have to get in the weeds there. But long story short, that's all treated as long term capital gains. So if you've held for longer than one year, you will pay long term capital gains rates as opposed to ordinary income. So you think about getting in the equity markets 8 to 10% upside compounds year after year versus a 2 to 3% ordinary income return that you'll get after tax. It's remarkably more tax efficient.
- [05:11]
Michael Batnik
I'm not, I'm going to, I'm willing to admit this, I never would have thought of it this way, but. So the idea is if you could get 100% protection on your downside or whatever it is, and you get upside is capped at 7 or 8%, that gives you a potential premium over cash. So cash is giving you three to four, you could get higher than that. Now the downside is of course you could get lower than cash. But you're saying you're also not paying taxes along the way on the income.
- [05:32]
Ben Carlson
Exactly. Well, I guess the question is like, yeah, that would, that would be your give up or your trade off as you could get lower than a cash rate. So you're, you're trading in that two and a half percent after tax return and you're getting 8 to 10% on the upside. Or we'll talk about Bitcoin and get even more upside. That's a tremendous power source for your cash. So it's a very counterintuitive but remarkable way to think about your safer money. You can now tie that to the equity markets, beat inflation, beat the risk free rate through the growth of the.
- [06:01]
Michael Batnik
Equity market, especially with rates coming down. Maybe the idea is something like if you wanted to set expectations, listen, three out of every four years you're probably going to beat that cash rate and maybe one of the years you're going to get 1% or 0%. And that's, that's the thing you have to be willing to risk is that you could lose to cash in some years.
- [06:21]
Ben Carlson
Yeah, that's right. The market could be down, which case you'd be down 69 basis points. But over time, you know, the market goes up usually beyond that cap rate. And so you're going to grab, grab that upside with no downside risk. Yeah, it's a, it's a tremendous, tremendous tool in the portfolio.
- [06:37]
Matt Kaufman
All right, so in thinking about bitcoin with protection and caps, like my first thought is why would you want to cap your bitcoin upside? Isn't the whole point that it offers asymmetric upside? Like, you know, you're not going to get 100% return in the S&P 500 now, I'm not saying that Bitcoin will go up 100%, but it could. So why would you want to go up 1000%? Yeah, why would. Well, take it easy. Why would you want to cap that upside? But I guess you're saying is like, no, dummy. I'm not suggesting, and I'm not saying that you're giving investing advice, but just the idea is that this. The person that would buy this bitcoin product is not necessarily not buying bitcoin and buying this. It's somebody that's putting money to work. That would be in a less. A more conservative bucket, which also sounds equally crazy. It's like, wait a minute, Matt.
- [07:23]
Ben Carlson
You.
- [07:23]
Matt Kaufman
You're telling me to take money out of my money market fund and buy bitcoin? Now, I understand the story, so why don't you give the story?
- [07:33]
Ben Carlson
Yeah. Well, first, I'll never call you a dummy. There's no dummies in this world. There's a reason you got where you got. But in terms of bitcoin exposure, we have a product line. We've launched the world's first protected Bitcoin ETFs. We launched one ETF on Wednesday, so that'd be January 22nd.
- [07:51]
Matt Kaufman
They'll be 37 by the time this episode comes out.
- [07:54]
Ben Carlson
Yeah, there you go. That's right. So that was the first one, the 100% protection. You know that headline? Anytime you put bitcoin and protection in the same headline, you're going to get media. And so we've had a ton of media exposure, a lot of articles written about that, but that's the first in a series. So on February 4th, we have a 90% protection and an 80% protection. And set in reverse, it's a floor product. You have a 10% floor. So 10% at risk or 20% at risk. And so what this suite does, the easiest way to think about it is you have bitcoin exposure with a safety net, and you can decide how low to set that safety net. Do you Want to lose 0% over the outcome period? 10% via a 90% protection level or 20% and the cap rates just go up from. From there. So 100% protection, 11.65% cap rate.
- [08:48]
Matt Kaufman
So let's pause there for a second.
- [08:49]
Ben Carlson
Let's do it.
- [08:51]
Matt Kaufman
All right, so 100% downside protection. Now, again, this is. This is if you buy at inception and hold for a year. Is that how it works? So in other words, like, let's say that you want to. Let's say in Six months, like, oh shit, I want to get out of this. And Bitcoin's down 50%. Are you still going to get 100% your principal out intra period?
- [09:07]
Ben Carlson
Yeah, if bitcoin is down intra period, you'll still be right around that 100% mark. We can dive into the holdings of why that is. But yeah, we have 100% protection. You buy in at the beginning at $25 nav and you'll be able to get that outcome period performance.
- [09:25]
Matt Kaufman
So you're saying that the, that the nav or not the, not the nav, the actual price shouldn't drift so far below 25 at any point in time.
- [09:33]
Ben Carlson
Yeah, that's right. So let's just walk through this scenario, you know, briefly. We can explain how we're constructing this.
- [09:39]
Matt Kaufman
So yeah, this sounds like a free lunch. So anytime I hear that, you know my.
- [09:43]
Ben Carlson
I totally get a little.
- [09:44]
Matt Kaufman
So please.
- [09:45]
Ben Carlson
Yep. And if you're, if you're in the X or Twitter sphere, a lot of people have asked that too. Says this sounds way too good to be true.
- [09:53]
Matt Kaufman
Yeah.
- [09:53]
Ben Carlson
So hopefully some of those folks are listening here. But the way that we'll build this is largely through a portfolio of zero coupon treasury bonds. So we buy zero coupon those for those who don't know, those are discounted by the risk free rate. So we're going to buy those at 96% and they're going to accrete to 100. So we buy at 96 because the risk free rate today is about 4%. So about 96% of your portfolio is going to be in zero coupon bonds that are going to accrete to 100 at the end. So that gives me 4% to play with. So I'm going to take that 4% and I'm going to buy a call spread on bitcoin and I'm going to buy those options on a CBO Bitcoin ETF index. So I buy an at the money call. So if you're familiar with options and at the money call gives you the upside exposure to that bitcoin reference price. And then the next layer, the last layer, I'm going to sell an out of the money call and I'm going to make that package equal to my 4% that I know I'm going to earn. So I've got a bunch of treasuries and a call spread. So what's the worst case scenario? Bitcoin goes down, your call spread expires worthless and I'm left with a bunch of Treasuries that are worth a hundred percent in my portfolio. That's it. There is no free lunch, which is why your upside cap is 11.65% right now. But when it comes to capital protected growth, Bitcoin is in fact your best power source. It goes up faster and higher than the s and P500 and more often. So you think about getting that cap rate, that's the best cap rate you'll find in principal protection land. And you can get all of that upside with no downside risk. And then last point, your downside's not tied to Bitcoin, it's tied to Treasuries. If Bitcoin expires worthless, you've got a bunch of Treasuries left over.
- [11:40]
Michael Batnik
All right, I'm all questions about the other protections, but on the treasury side of things, so the obvious, the risk there is if rates fall and now you have a 2% zero coupon bond, you only have 2% to play with and that kind of changes your caps potentially.
- [11:52]
Ben Carlson
You have interest rate risk at the point in time when we strike the options. So we struck those.
- [11:58]
Michael Batnik
So those things could change over time as rates change.
- [12:00]
Ben Carlson
You got it? Yep. But you'll always be better than the risk free rate.
- [12:04]
Michael Batnik
Right. Because everyone is. Yeah. Okay, so you, you're talking about the 90% protection and 80. So the way I see it, that is you're exposed to the first 10% of downside and then you're protected and then the other one, it's 20%. So what are the cap on the upside for those right now?
- [12:16]
Ben Carlson
Yeah. So let's, I'll, I'll hold that as the payoff to, to the story here. So yeah, we do a floor product. These are not buffers. So there's a $60 billion buffer ETF space, that's all tracking the equity markets and you get protection from the first set of loss. So if I give you a 10 buffer, you're protected from 0 to minus 10 and then you're exposed. You could lose from minus 10 to minus 100. We've done the inverse of that. We've given you a floor. So if you have a 90% protection level, you have a 10% floor. So think of your safety net. You could be exposed from 0 to 10, but you're not going to lose anything more than that 10% before that 69 basis point expense ratio. And the cap on that we're seeing right now is about 30%. So you put 10% of your money at risk, you get 30% upside to the price of bitcoin over the year. And then we can lower that net. Let's lower it to 20. So now the cap rate we're seeing is about 55. So you can get 55% upside to Bitcoin with 20% at risk.
- [13:18]
Michael Batnik
So that's a way higher spread than you get in the equity products, obviously.
- [13:20]
Ben Carlson
Remarkably higher spread. That's right.
- [13:22]
Matt Kaufman
Is this because there's more volatility there? So there's more juice in the options.
- [13:25]
Ben Carlson
There's more volatility, there's more upside volatility. So we're selling off that call to help fund our protection level. And so because we're getting more from that call, we can give you more upside opportunity. So it's.
- [13:39]
Michael Batnik
I gotta be honest, those ceilings are way higher than I would've expected.
- [13:41]
Ben Carlson
Remarkably higher. That's right. That's right.
- [13:44]
Matt Kaufman
And so. But it's at, it's at expiration, right? Like that's, that's the level that matters.
- [13:48]
Ben Carlson
Well, you're getting that cap rate over expiration, but you're gonna achieve it along the way up, you know, so your, your delta, or just call it upside. Capture 20 to 30% early on, and then you're going to get all of that cap over the outcome, period.
- [14:02]
Matt Kaufman
So. But If Bitcoin's up 30% after you buy in the first three months, are you up 30% in the first three months?
- [14:08]
Ben Carlson
You're not. But me personally, if that happens, I'm in. Because now I know that bitcoin has achieved that 30% and I can buy that ETF knowing that I'm going to earn that 30% over the next 11 months or so. And so there's opportunity to capture that. It's already back.
- [14:25]
Matt Kaufman
That sounds like a free lunch. I know.
- [14:28]
Ben Carlson
In that case there's a. That would sound. And I can't say that, but it does feel a little bit like a.
- [14:33]
Michael Batnik
Lot of bitcoin fell from there. Why wouldn't. I don't get that.
- [14:36]
Matt Kaufman
No, because Ben, what he's saying is like, if Bitcoin's up 30% in the first three months, okay. And the product's not up 30%, that means that your floor for losses at a 20% floor is now I got 50% lower or even more. Whatever.
- [14:47]
Michael Batnik
Okay.
- [14:47]
Ben Carlson
Yeah, exactly.
- [14:48]
Michael Batnik
I got you. Yeah.
- [14:49]
Ben Carlson
Bitcoin can fall 30% before your floor actually needs to kick in.
- [14:53]
Matt Kaufman
Yeah.
- [14:53]
Michael Batnik
Okay, that makes sense.
- [14:54]
Matt Kaufman
But. All right, so this is just weird because you're saying that. Well, you're not saying this, but I'M thinking this, that like, this isn't necessarily for people that want bitcoin but don't want the bitcoin downside. This could be for anyone. And if you're saying, hey Listen, with the 100% protection, worst case you don't make money, but best case you make 11%, that's a lot better potentially than keeping your money in cash, which is earning 4% and heading lower.
- [15:18]
Ben Carlson
That's exactly right.
- [15:19]
Matt Kaufman
Do you really, do you really, do you really think that? I guess you do think that. Because you guys launched a product. Do you think that that's where the money's going to come from? Do you think it's going to come from conservative allocations? Which again, holy moly, this is just like a, this is like sort of backwards, but it makes sense.
- [15:32]
Ben Carlson
I know.
- [15:33]
Michael Batnik
Why couldn't it be like, couldn't it be like a high yield exposure or something? Maybe if you especially like the 11% one, you could say like, well, I'm getting 6 or 7% in high yield right now. Couldn't it come from somewhere like that as well?
- [15:43]
Ben Carlson
This, this opens up the portfolio, which is why I say that this, these ETFs literally can be for anybody. You know, if you look at, let's say spot bitcoin ETP land, where some of the largest asset managers out there who are telling you to put 3 to 5% in Bitcoin, but they want you to sell mag7 exposure to do it. Well, why, why would you sell Mag7 a growth asset that's giving you high upside opportunity, Maybe a little volatile. That's about the best, like for like substitution. You don't have to do that anymore. You can sell out of your cash, you can sell out of your bonds, you can sell your equities and just move into the protected version. Choose the, that, that version that helps you sleep best at night. I want to put 0% at risk, 10%, 20% and get all that upside growth. If you want to, if you want to increase your portfolio growth potential. You know, if you're moving your cash in and you're getting two or three times the risk free rate, that's a phenomenal way to increase upside opportunity without taking on any downside risk. Or maybe you're pairing it with some spot Bitcoin ETPs and now you can cut off your tail risk but not cut off your upside. There's a lot of things you could do.
- [16:53]
Matt Kaufman
Is there a risk of this breaks that like what you're trying to deliver for whatever reason? Could that not pan out.
- [17:01]
Ben Carlson
Yeah, there's no, there's no risk that I can think of as far as breakage goes. You know, I've built probably a couple hundred of these types of products. I was, you know, pretty instrumental in the development of the defined outcome space in 2017. And there's hundreds of those in the market. We build these somewhat similarly. Instead of those, you might get in the weeds. But instead of a zero strike call on an equity option, we hold Treasuries here. And so like the risk, if the lights go off on Bitcoin, you're left with Treasuries. That is, that is the risk of the protection you've got.
- [17:32]
Matt Kaufman
It really is a great time to be an investor, man. This sounds, at the risk of sounding like, like I'm fawning. It sounds like such a great idea. So like, all right, so the risk is what you don't make money. Like, okay, that's not that big of a risk. But the, the potential outcome is for up to 11% and change. Is that what you said?
- [17:52]
Ben Carlson
That's if you buy the 100% protected product. Yeah. Or you put 20. Yeah, whatever.
- [17:57]
Matt Kaufman
This is like, I'm thinking like this is, this is. This is not an investment in Bitcoin. This is an investment in like, I can get up to 11% with a downside of zero.
- [18:06]
Ben Carlson
This is using Bitcoin as a power source for your portfolio, in a way.
- [18:11]
Matt Kaufman
Take it easy. Michael Saylor.
- [18:13]
Ben Carlson
Well, yeah, you talk about Saylor. I mean, yeah, he's basically building and using the converts market in order to buy Bitcoin. The convertible bond price track. If I could show you a picture. Looks similar to a payoff profile of an option strategy. It's got.
- [18:29]
Michael Batnik
I was thinking that too. I've seen that convertible graph before, like my CFA days or whatever.
- [18:33]
Ben Carlson
Yeah.
- [18:34]
Michael Batnik
Like it shows the floor and that is very interesting. So the other thing I want to hear you talk about is the bitcoin options market, because this is obviously relatively new. Would you expect over time as this matures for the, the options premiums to change and maybe it comes down a little bit? Or do you think because this is such a volatile asset and it trades 24 7, these options are always going to have something of a premium to them.
- [18:56]
Ben Carlson
Yeah, there's a lot to, lot to unpack on that one. As far as options go. You know, Calamos is a risk manager. We've been doing this for nearly 50 years. And so when you don't stay around for that long in the risk management game, Unless one, you know what you're doing and then two, you innovate with security. And so the same is true for bitcoin. When we build risk management and innovate, we have to do it in a way that works. I think about like maybe it's an old version of AI where you ask it to draw a picture of, you know, Ben here I'm looking at you and it comes back looking like a cat and it's like, oh, that was way off. Unless people think you look like a cat, I don't know. But so you think about how big, how AI has just evolved and is getting better and better. You can't really do that with financial services products because it can't break. And a lot of times you're dealing with people's life savings. I'm talking about putting your safe money and tying it to bitcoin now. And so you have to build things in a way that works. So that's why you see a lot of outcome based products built on really liquid underlyings like the S and P or NASDAQ or Russell, maybe international. You're starting to get, get close to the edge there. Bitcoin, believe it or not, is very liquid. It's a $1.9 trillion asset just past silver, nearly as liquid as, as Nvidia. From a market cap perspective, not quite where gold is $18 trillion. But you, you run that into the ETF space and there's 2 to 5 billion dollars trading every day through those spot Bitcoin ETPs. So where does that take us? Usually after the spot Bitcoin ETPs come out, you know, or those liquid ETFs, you get options. And so we were tracking that, you know, over the last nine, 10 months you've got options looking to come out. SEC held up their hands and they said, hold on, we want to slow roll this. We don't want these options out right away. We want to watch the bitcoin marketplace evolve more. You know, finally the SEC approved those options, but they did so with position limits. And then the CFTC came out and they said, well, we want to make sure we don't have a say here. They finally agreed, we got those options out. And so what we've done is, you know, working with cbo, CBOE has built an index that tracks the price of spot Bitcoin ETPs and that's the options market that we're using so the market makers can all hedge themselves through the liquidity of the spot bitcoin ETP marketplace. And we're able to use flex options on that index, which is treated as an equity index. So now we can create a really liquid environment. We came out at $25, we opened in cash in order to give people an opportunity to buy in at the beginning. So I'll just touch that for 10 seconds. I know I'm getting long in the tooth here. So we, if you look at all the defined outcome funds in the market, you would strike a cap rate, but then the market would, could move overnight and then you buy in and get close to that protection level. Well, for bitcoin, like you said, it trades 24 hours a day. So what if Bitcoin moves overnight 5, 10%, which it has before. We want people to be able to buy in and get the protection level that we're stating. So on the 22nd we opened at 25, we're going to do the same thing on the 4th. Gets, allows you to buy in all day right around 25 and get the exact protection level you're looking for and then we strike the cap at the end of the day. So just to wrap all that up.
- [22:15]
Michael Batnik
So sorry, that's, that's just for the first day of trading for these vehicles.
- [22:18]
Ben Carlson
The first day of trading opens at $25. Right. To give people an opportunity throughout the day. That's right, yeah. So that's a, that's a brand new thing for the outcome based space and it worked phenomenally. We saw a lot of people appreciate that opportunity to, to get the protection level the product was saying they're going to deliver.
- [22:35]
Michael Batnik
And are most, do you envision most people to buy these on that first day or you think there's going to be a lot of turnover in these strategies as the price of bitcoin moves?
- [22:46]
Ben Carlson
Yeah, I'll speak to the first part of that question. We've been in the market three days. I'd say about 60, 70% of the money has come in on day one. I think more money will keep coming in. We're at about 2503 today. So now if you bought in, you'd get a 99.8% protection level instead of 100. So 20 basis point difference there. What we've seen historically is it's about 50, 50. Some people buy in at the beginning, they want that outcome period performance, they want that certainty. Some people buy in along the way. You know, Michael, you mentioned if Bitcoin's up 30%, you see a flood of money coming in. So we see people buying and selling all along the way and it's pretty fun to watch, actually.
- [23:26]
Michael Batnik
So, Matt, on this show about a month ago, I talked about how I've ridden bitcoin since. I don't know, I think I first bought it when it was like $4,000. And I bought more along the way. And I've sat through many a crash, two or three really big ones. And so when it finally got to 100,000, I sold half of my bitcoin position. I said, you know what? I'm taking some money off the table.
- [23:49]
Matt Kaufman
You sold half? I didn't know this was half, man. Half of my hands over there.
- [23:53]
Michael Batnik
Yes, but I'm looking at, like, let's say I still wanted a little bit of exposure. I look at that 90% protection. It gives me 10% downside and 30 whatever percent upside if I wanted to tow back in the water there. That's not a bad way to do it either, because you have.
- [24:10]
Ben Carlson
I wish that you had had half of that still. You could put it in the 90 or the 80. Protection, like, who wouldn't want 50% upside? And you got 20% of that at risk. That's a great way to protect the growth that you've earned over the last year. And good, good for you for hodling for that long. That's the traditional finance guy trying to.
- [24:28]
Michael Batnik
Use as a tradition. I can't say that ever exactly.
- [24:32]
Ben Carlson
Didn't come out well for me either.
- [24:33]
Michael Batnik
I'm, I'm curious how the conversations have evolved with both your equity products and then how it will evolve with this one, because you said that a lot of people are using it to equitize their cash or fixed income or whatever. Is that how you envisioned these products or are you kind of surprised at the way that people are using them?
- [24:51]
Ben Carlson
Yeah. I'll tell you, on February 4th, you know which one is more successful.
- [24:55]
Michael Batnik
So February. Sorry, February 4th is when you're 90 and 80% protection are coming.
- [24:59]
Ben Carlson
That's right. That's right.
- [25:00]
Michael Batnik
Yeah.
- [25:00]
Ben Carlson
So we're, we're seeing people lining up for that 80. We've seen a lot of movement into the 100. It's a little counterintuitive. You know, we, we talked about it here. The idea of tying your safe money to bitcoin is a very novel concept. Like, it sounds funny saying it, but it is true, by the way.
- [25:17]
Matt Kaufman
People are like, oh, what's the use case in bitcoin? Well, here's one use case.
- [25:20]
Ben Carlson
Yeah. Oh, absolutely, absolutely. It, it is, in fact, a wonderful power source. If you, if you want protection and getting upside because you get that strong upside cap. Like, just thinking about me personally, I've got a, you know, a school bill coming in probably nine, 10 months. And this is, this is a great way to try to earn 11 and a half percent.
- [25:40]
Matt Kaufman
I see the wheels turning in Ben's head. He's going to change his profile. Picture the laser eyes. It's coming.
- [25:45]
Michael Batnik
I don't think you could be laser eyes if you're hedging the downside in Bitcoin.
- [25:48]
Matt Kaufman
Matt, we spoke about this earlier, but I want to circle back because I don't know that I understood it clearly. Talk about, I know we're not, we're not giving tax advice here, but talk about the tax implications. So on day. Is it day 366, this thing matures and.
- [26:03]
Ben Carlson
Yeah.
- [26:03]
Matt Kaufman
So one on the taxes and then two, does this product just continue to roll? If you don't want to take your money out, does it do the same thing at day 366? So fire away.
- [26:13]
Ben Carlson
Yeah.
- [26:13]
Michael Batnik
Let's say I buy the 90% protection on February 4th. What happens on February 4th, 2026 or whenever it starts February 3rd, whatever it is.
- [26:20]
Ben Carlson
Yeah, so the ETF will stay open. You know, there's ETFs that are out for a duration. They close like a bullet share. This is not that. This is a. This ETF stays open. The options will simply roll year after year. So in one year, the next, February 4th, actually, we're going to expire January 31st of next year. Every year, January 31st. And so those options will just roll. You'll get a brand new protection level, a brand new upside cap and a new outcome period. So that's how the products work. Comparing to an equity product, the taxes are a little bit different. So I can explain that now on The S&P 500, all of that growth is tax deferred. You know, there's no ordinary income being kicked out. There's no bonds in the portfolio. But contrast that to the way we do on Bitcoin. We hold Treasuries. Again, because of the safety of Treasuries relative to maybe if Bitcoin's lights go off, I don't think that'll happen. But you're holding Treasuries and then because of diversification, it's in the weeds. Comment. But Bitcoin is considered a single asset. So we, in order to meet registered investment company requirements, we have to diversify through Treasuries. So all that said, we own, let's say we own 96% in treasuries. You're going to earn 4%, your risk free rate. We can offset that against our expense ratio. So you're going to get the upside of Bitcoin, that growth is going to be tax deferred. We do not anticipate distributing any of those gains out. But then you might have about a 3% distribution from the income that you'll earn from Treasuries. So you look at the 80% product, for example, if you earn 50%, you know, 47% of that is going to be tax deferred and you might get a little bit of a distribution from the ordinary income.
- [28:07]
Michael Batnik
So I'm back to the option stuff, which I think is fascinating. I guess one of the things that makes you confident about the options market, even though it's brand new, basically is the fact that these ETF providers are going to be providing the liquidity. Is that fair to say?
- [28:20]
Ben Carlson
Yeah, the market making community. So we have, you know, some of the top market makers in the world, you know, very names that you could, you could think of off the top of your head are all making markets in these products. That was a exercise we went through over the last six to nine months to make sure everybody was confident in doing it. And we have a proof case. We've been in the market a few days, it's gone phenomenally. It reminds me of when we built out the outcome based space in 2017. It was a similar exercise. The S&P 500 was a very liquid complex, but there were no flex options trading in ETFs at the time. And so we built these products on flex options and that ecosystem has grown into a $60 billion space. The products launch seamlessly because of those market makers who are able to transact in the ETFs and hedge themselves from the underlying. If you take it even broader, think about the first fixed income ETFs that launched. People didn't know where that liquidity would come from. And in fact the ETFs are now driving liquidity into the underlying fixed income instruments. So very similar here and it's working phenomenally.
- [29:27]
Matt Kaufman
Matt, when do options start trading on Trump coin?
- [29:30]
Ben Carlson
Oh boy.
- [29:33]
Michael Batnik
I have one more question for you. Yeah. So let's say you're in the the 50%, the 80% protection and you have the 50 whatever percent upside. And in the first three months of the year, Bitcoin knocks out of the park, you hit your goal. Is there ever a case where it's going to make sense to trade from one fund to the next or to like Lock in gains. Is that ever a possibility here?
- [29:55]
Ben Carlson
Yeah, absolutely. You're not going to hit your cap rate. Let's say the cap's 50. You're not going to hit the 50 until the last day of the outcome period.
- [30:02]
Matt Kaufman
It's like the opposite of time decay.
- [30:04]
Ben Carlson
Yes, exactly. You're just accreting that. So I was looking at CPSM, which is our May S&P 500 series. There's about 90 days left in the outcome period. The S&P 500 is up 23% to date over that period. But the ETF has about one and a half percent of value left. And so I actually, I think that's a good trade for somebody because you got 90 days left, you're going to make 150 basis points over that 90 days. As long as the S and p doesn't fall 20%. So there's some really interesting intra period opportunities that we're seeing. What I like on, you know, playing the 100% protection products, let's say you buy a January series. If the market's down, if the S and P or Bitcoin is down, you've avoided that loss and so you could move into the next month. You know, if we launch one in February or March, you've avoided all that loss and now you can reset your starting point and capture a rebound if it happens. So there's a lot of pretty cool opportunities inter period, but I'd say that's you know, level 201 and we could dive into that.
- [31:08]
Michael Batnik
You got to know what you're, you have to understand how these things work and.
- [31:11]
Ben Carlson
Yeah, exactly, exactly. And you can go to our website.
- [31:14]
Matt Kaufman
Does Calamus have people that work with advisors on behalf of their clients or if people want to, aren't exactly sure where this fits or, or different, you know, whatever, like.
- [31:25]
Ben Carlson
Yeah, absolutely.
- [31:26]
Matt Kaufman
To them.
- [31:27]
Ben Carlson
Yeah, we talk to them all day long. Yeah, I was on an hour long call with an advisor before jumping on with you. That's our, that's our bread and butter. You know, we have 40, 50 person, you know, portfolio specialist team. That's all they do all day long is talk to advisors. We have a portfolio strategy group who's running models for people back testing those. One advisor sending us his model, he wants to add Bitcoin microstrate converts and he's like can you model this out for me? So we're working on that right now as well. But yeah, that's what we do all day long. And you know, we've got trade ideas or we'll send an email out to people who want to know like when there's a good idea like that CPSM trade or if, like you said, if Bitcoin's up 30 and you might want to get in, we'll give people those ideas if, if they're willing to hear from us.
- [32:12]
Matt Kaufman
Very cool. All right, so that's, that's kylemos.com.
- [32:16]
Ben Carlson
Yeah. Calamos.com you can see all of the pricing that we have for the ETFs. And I'm not saying pricing as far as expense ratio, but where those are trading, anytime the market's open, you can know what your upside is, your protection level and how many days are left.
- [32:30]
Michael Batnik
So you understand what the ceiling is or the cap or the floor or whatever it is based on where the price is.
- [32:34]
Ben Carlson
Exactly. Yeah, exactly. I mean, look at, look at how many options based strategies are in the market. There's put spread collars, there's hedged equity strategies. These are the only types of products that can tell you what the future looks like. We're telling you exactly where you're buying in at. We know how long your options life is and so we have the ability to tell you where you'll land over the next one year or so. So really, really cool opportunity to get bitcoin in a way that's measured and understandable.
- [33:01]
Matt Kaufman
All right, good stuff, Matt. Appreciate the time.
- [33:03]
Ben Carlson
Thank you.
- [33:06]
Michael Batnik
Hey, if you would like to learn more. Calamos.com thanks Matt for joining as always and email us animalspiritscompoundnews.com.