Grayscale adds options spin to Ethereum with launch of ETCO ETF

Grayscale is leveraging its own ecosystem to launch the ETCO fund, a strategy that writes call options on its existing Grayscale Ethereum Trust ETFs, creating a new product designed to generate yield from volatility.

Summary

• Grayscale launched the Ethereum Covered Call ETF (ETCO) on NYSE Arca, an income-oriented fund that writes call options on its Ethereum trusts.
• The ETF targets yield generation from volatility, with biweekly payouts, and starts trading with $1.4 million AUM.

On September 4, Grayscale Investments announced the launch of its Grayscale Ethereum Covered Call ETF on NYSE Arca. The actively managed fund, trading under the ticker ETCO, will not hold Ether directly.

Instead, it will employ a strategy of writing, or selling, call options on spot Ethereum ETFs, primarily targeting the asset manager’s Grayscale Ethereum Trust ETHE and Grayscale Ethereum Mini Trust ETH.

The primary objective is to generate income from the premiums collected from these options, with distributions to shareholders targeted on a biweekly basis. Notably, the fund joins Grayscale’s existing income-focused lineup, including a similar Bitcoin covered call ETF, as the firm broadens its push into yield-oriented strategies.

Why Grayscale is betting on Ethereum income

Grayscale framed the launch of ETCO around Ethereum’s position as the second largest crypto asset by market cap and a natural fit for income experimentation. The firm said it is targeting investors who want to complement their existing spot Ethereum exposure with a potential income component, moving beyond a simple accumulation thesis.

“We know that investors are all unique with different needs and investment goals, and we’re excited to introduce this new ETF as part of our commitment to providing innovative, outcome-oriented solutions that meet them where they are,” Krista Lynch, Senior Vice President, ETF Capital Markets at Grayscale, said.

According to the firm, the fund prioritizes income by systematically writing, or selling, call options near current spot prices on Ethereum ETPs. This approach is designed to capitalize on market volatility and time decay, theta, to collect premium. The method also introduces a potential buffer, as the income generated from selling calls may help mitigate the impact of minor price declines in the underlying assets.

The fund commenced trading with approximately $1.4 million in assets under management, a starting figure that reflects initial market appetite for this novel strategy. Its success will be closely watched as a barometer for demand for complex crypto yield products in the regulated ETF wrapper.

Meanwhile, Ethereum itself continues to hold its ground in broader markets. As of press time, the asset traded at $4,410 after gaining about 1% in the last 24 hours, according to crypto.news data.