CMFDH II — Expressing the Futures Hedge Entirely in Options
1. Background and objective
CMFDH II holds spot Bitcoin, sells covered call options against a portion of the position, and maintains a standing short position in the current-quarter Bitcoin future against one half of the book. The short future is the fund's structural downside protection: in a decline, gains on the short future offset losses on half the spot position, dollar for dollar, at every price level. This protection is paid for in strong rallies, where the hedged half of the book does not participate above the hedge entry — the asymmetry is deliberate, and it is the core of the strategy.
This note addresses a mandate preference for the portfolio to be expressed with at least one half of its instruments in options. The question examined: can the short-future hedge be reconstructed using options alone, and at what cost or benefit? Two structures accomplish this. Both are laid out below with live market pricing.
↑ Top2. Live market snapshot
| Item | Level |
|---|---|
| BTC index price | $64,460 |
| September 2026 future (25 Sep expiry, 58 days) | $64,889 |
| Basis (contango) | +$429 ≈ 0.67% to expiry ≈ 4.2% annualized |
| Sep 50,000 call — bid | 0.2345 BTC ($15,116) · delta ≈ 0.92 · open interest 30.5 |
| Sep 55,000 call — bid | 0.1645 BTC ($10,604) · delta ≈ 0.85 · open interest 83.9 |
| Sep 50,000 put — mid | 0.00725 BTC ($467) |
| Sep 55,000 put — mid | 0.01425 BTC ($919) |
3. Structure A — Synthetic short future (recommended)
Selling a call and buying a put at the same strike and expiry produces, by put-call parity, a position identical to a short future at that strike. Executed near the money (for example the September 65,000 line), the combined position carries a delta of exactly −1.00 at every underlying price, from entry to expiry.
Yield: effectively the same forward sale price as the future (~$64,880 vs. $64,889), capturing the same ~4.2% annualized contango the futures hedge earns today.
↑ Top4. Structure B — Deep in-the-money call sale
Selling a single deep in-the-money call (strike well below the market) creates a position whose delta approaches −1 and whose large premium, added to the strike, locks in an effective forward sale price. At today's prices:
| Strike sold | Premium (bid) | Effective forward sale | vs. future ($64,889) | Delta today |
|---|---|---|---|---|
| Sep 55,000 C | $10,604 | $65,604 | +$715 / BTC (≈ +7% ann.) | ≈ −0.85 |
| Sep 50,000 C | $15,116 | $65,116 | +$227 / BTC (≈ +2.2% ann.) | ≈ −0.92 |
The additional yield is not incidental. By put-call parity, a short deep in-the-money call is exactly equivalent to a short future plus a short out-of-the-money put at the same strike. The extra yield is the premium of that embedded put — compensation for accepting that the hedge ceases to protect below the strike. Below $50,000 (or $55,000), the position behaves as if unhedged: the structure trades tail protection for income.
Two further practical points. First, delta at these strikes is 0.85–0.92, not 1.00, so the position is under-hedged from inception, and the shortfall widens as the market falls. Second, deep in-the-money strikes are thinly traded (open interest of 30–84 contracts, minimal volume), so execution at size requires patience or price concession.
↑ Top5. Side-by-side comparison
| Attribute | Short future (current) | A — Synthetic short | B — Deep ITM call |
|---|---|---|---|
| Delta | −1.00 always | −1.00 always | −0.85 to −0.92, varies |
| Downside protection | All price levels | All price levels | Ends below strike |
| Effective forward sale | $64,889 | ≈ $64,880 | $65,116 – $65,604 |
| Yield vs. future | baseline | ≈ −0.1 to −0.4% ann. | ≈ +2.2 to +7% ann. |
| Options content | None | Two option legs | One option leg |
| Liquidity at size | Deep | Good (near the money) | Thin |
| Source of extra yield | — | — | Embedded short put (tail risk sold) |
6. Risk considerations
Structure A changes the instrument, not the risk. It is the faithful translation of the fund's hedge into options form, and the modest execution drag is the full cost of the translation.
Structure B changes the risk. Its yield advantage exists only because downside protection is surrendered below the strike sold — precisely the region the hedge exists to cover. If Structure B is used, the portfolio should be described as holding a hedge plus a short out-of-the-money put, and sized with that exposure in view.
In both cases, quarterly expiries require rolling; roll timing and strike selection remain managed positions, as with the futures hedge today. Option positions carry exchange margin requirements that differ from futures margin and are monitored accordingly.
↑ Top7. Notes and disclaimer
Prices are live Deribit quotations captured 29 July 2026, 11:25 UTC, and change continuously; annualized figures are arithmetic extrapolations of 58-day values. Delta figures are model estimates at quoted implied volatilities. This document is for discussion purposes only. It is not an offer to sell or a solicitation of an offer to buy any security or fund interest; any such offer is made only through the fund's offering documents. Digital assets are volatile and an investment in the fund may lose value. Nicholas Levenstein & Company · levenstein.net/contact
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