Summary The NEOS Bitcoin High Income ETF has been a go-to for many investors seeking insane yields with the potential to ride Bitcoin's growth. New ETFs have emerged with similar but critically different strategies, such as the Amplify Bitcoin Max Income Covered Call ETF. BAGY uses a different options strategy and has, in its very short lifespan, outperformed both BTCI and Bitcoin itself. This raises questions about whether BAGY has found a structural advantage or just got lucky on timing. Risks are everywhere with these funds, but so are rewards, and investors should tread carefully. BAGY also suffers from being very small and young, compared to BTCI's longer history and much larger AUM. Introduction I've covered quite a few Bitcoin ( BTC-USD ) income ETFs on Seeking Alpha, but my work is never done, as there is a seemingly constant stream of new covered call ETFs, including those targeting BTC, regularly hitting the market. I began researching for this article with the intent of writing an update about the NEOS Bitcoin High Income ETF ( BTCI ), which I first covered back in May, but I was distracted by a newcomer fund that has made a solid run at BTCI since its debut this year, the Amplify Bitcoin Max Income Covered Call ETF ( BAGY ). Data by YCharts BTCI vs. BAGY Overview On the surface, both funds have the same strategy and incredibly similar holdings. They buy Bitcoin exposure through ETFs and derivatives like futures and write short call options against that exposure to produce income. This is the "covered call" strategy, and is incredibly popular with income investors. Here's a quick rundown of these two funds, for context: BTCI BAGY Inception 10/17/2024 04/29/2025 Price $65 $60 AUM $544M $10M Distribution Rate* 27.92% 30.94% Distribution Frequency Monthly Monthly Derivative BTC Exposure** CBTX MBTX BTC ETF Exposure HODL IBIT Options Expiration Monthly Weekly Options Strategy Credit Spreads Dynamic Overwrite Actively Managed Yes Yes Expense Ratio 0.98% 0.65% * All dividends paid in the last 30-days divided by the current price, not TTM. **The differences between CBTX and MBTX futures can be found here . Warning: BAGY is Young and Small First things first, let's address that BAGY has a very low AUM. Its managers, Amplify Investments, manage almost $13B across 32 ETFs, and BAGY is one of the newest, so it makes sense that it has a low AUM currently. Their largest fund, at $4B in AUM, is the DIVO ETF, which I covered back in February this year. There is tremendous risk investing in low-AUM ETFs, especially if you intend to make a very large investment, because there can be a lack of liquidity in shares that causes irregular pricing. I do not see any risk of the fund being closed anytime soon, but it should be of note that most ETFs that delist/close and return money to investors do so because of a lack of investor interest in the fund. Too low AUM for too long and the fund ends up being a money sink, so they close them. Just a heads-up for folks used to investing in funds like BTCI, which have far greater liquidity due to the $500M+ in assets. But BAGY Carries a Higher Yield... The folks at Amplify Investments are always looking for a wrinkle in the market, or a way to take advantage of some inefficiency. Their wrinkle in the DIVO ETF is to write calls against individual stocks instead of an index. In BAGY, their wrinkle is weekly active management and dynamic overwriting. By selling options weekly instead of monthly (although NEOS does sometimes manage BTCI's monthly options more than once a month), BAGY is able to be more flexible in its positioning, enabling BAGY to capture up to 5% of Bitcoin's upside per week, and an expected yield of 30-60% — huge range, but that's what Amplify is comfortable saying in their fact sheet . Currently, they are at the short end of that range, but BAGY hasn't had a full year to make distributions yet. Time may be needed to see where the yield ends up, and it may depend on how Bitcoin moves as well. BAGY, despite having a lower share price than BTCI, has begun outproducing in dividend amounts over the last two months. Again — to shoot a time frame to say anything meaningful yet, but it is impressive. Data by YCharts ...And a Higher Total Return It's a common adage when discussing income products that investors shouldn't expect outperformance of the underlying asset. This makes sense from a technical perspective: having a covered call component necessarily means limiting the upside of the long position. However, BAGY has actually outperformed BTC since its inception (too short a timeline to say anything conclusive, but how interesting to see). See the first chart in this article. We haven't seen how BAGY will do in a downturn, but I expect it to suffer the same as BTCI, which is to say that they will likely receive almost all the drawdown of BTC, less the income received. BTCI vs. BAGY Major Difference The most important distinction between the two funds is their options management. On top of the timing differences mentioned earlier, BTCI employs bear call spreads (credit spreads) where they offset their short position with long call options at times. It's unclear how often these are deployed by NEOS management — I've heard from interviews with the fund managers that they have never been deployed in the S&P 500 version of the fund, SPYI, but the possibility exists. This system could fill in some missing upside in BTCI, but also could add excess risk if Bitcoin continues to fall. It is something to watch, but so far it seems that NEOS has deployed the strategy conservatively or not at all yet, favoring just the covered call mechanic on its own for now. BAGY employs a "dynamic overwrite" strategy, meaning that they modulate how much of their BTC holdings they sell calls against. This assists the managers in that they can limit their upside cap during times they believe they could achieve growth. We can see some difference in how these funds have diverged between their price and total returns; the gap between these are dividends paid. Data by YCharts The reason for BAGY's outperformance of BTCI and BTC proper during this period is unclear to me. It could just be a well-time options trade that worked out perfectly for the portfolio managers at Amplify and this timeline is too short to weed out those "lucky" moments. However, it could also be a sign that the structural "wrinkle" I mentioned earlier, actively managing weekly MBTX options that allow for 5% capital appreciation per week in a dynamic overwrite strategy might be a structural advantage. Time will tell, but those interested in BTCI should consider adding BAGY to their watch list, or taking a small position to diversify between managers ("key man risk"). Suitability: Risk & Taxes It's important to note that investing in these two funds both involves significant risk, not only of underperforming the underlying (which may still happen despite recent performance), but also in the risk of Bitcoin itself. BTC has historic drawdowns that are eye-watering, and investors need to be able to stomach these kinds of 70-80% drawdowns. While institutional ownership of Bitcoin means that we may see lower drawdowns in the future as there will be more buyers with deeper pockets, nothing is guaranteed. Data by YCharts Notably, these funds are suitable for taxable investment accounts due to the way their dividends are set up. Derivatives gains and losses (i.e., options premium) is distributed to ETF shareholders as return-of-capital ("RoC"). This means that distributions from these two ETFs are not taxed as they are distributed, but instead are subtracted from one's cost-basis. The taxable event comes when the shares are sold, and capital gains (difference between cost-basis and sale price) are had. For most investors, long-term capital gains tax rates are lower than income tax rates, making this style of distribution popular among many investors. If you get to zero on your cost basis (AKA "house money"), new RoC distributions would be considered long-term capital gains and are taxed in the year you receive them, but at the (most likely) lower LTCG rate, according to this IRS publication . A nondividend distribution reduces the basis of your stock. It is not taxed until your basis in the stock is fully recovered. This nontaxable portion is also called a return of capital; it is a return of your investment in the stock of the company. If you buy stock in a corporation in different lots at different times, and you cannot definitely identify the shares subject to the nondividend distribution, reduce the basis of your earliest purchases first. When the basis of your stock has been reduced to zero, report any additional nondividend distribution you receive as a capital gain. Whether you report it as a long-term or short-term capital gain depends on how long you have held the stock... Example 1. You bought stock in 2010 for $100. In 2013, you received a nondividend distribution of $80. You did not include this amount in your income, but you reduced the basis of your stock to $20. You received a nondividend distribution of $30 in 2023. The first $20 of this amount reduced your basis to zero. You report the other $10 as a long-term capital gain for 2023. You must report as a long-term capital gain any nondividend distribution you receive on this stock in later years. Conclusion Ultimately, both BTCI and BAGY have impressed in the Bitcoin income space. Income investors are likely very happy to have owned either of these for the times they have been on the market, but those have only been during a BTC bull run. Interestingly enough, BAGY has outperformed both BTCI and BTC proper since it launched in May, but the timeline is so small that idiosyncratic rewards ("luck") may be affecting the data. "Time will tell," is the current last word on BAGY. In the meantime, BTCI investors (and those interested in Bitcoin income ETFs more broadly) should consider following BAGY as it may have found a "market wrinkle," an advantage that allows them to eke out just that much more juice. Will it lead to a larger drawdown? I don't believe so, and that's the magic part: it may lead to more upside and a similar downside to BTCI, but again, time will tell. The fund is still too new and too small to say definitively. I maintain my buy rating on BTCI, as it is still one of the best Bitcoin income ETFs and should be one of the go-to for Bitcoin income seekers — although my favorite is still MAXI. BAGY has also earned a buy rating from me based on its unique strategy and the impressive short-term performance of that strategy. This fund has its drawbacks and risks to be aware of, but those may improve over time as the fund gains more traction. Thanks for reading.
