Key Takeaways
- Grayscale filed the proposed ZCSH High Income ETF on Sept. 25.
- The fund intends to make distributions every two weeks.
- Selling call options could limit its gains during a zcash rally.
New Fund Would Use Options on Grayscales Zcash ETF
Investors seeking income tied to zcash could get a new exchange-traded fund if Grayscales proposal moves forward. In a prospectus filed Sept. 25, the asset manager outlined the ZCSH High Income ETF, which would trade options linked to zcash exchange-traded products (ETPs) and aim to make distributions every two weeks.
The proposed fund is separate from Grayscale‘s existing zcash ETF, which trades under the ticker ZCSH and holds ZEC. The income fund’s prospectus lists its ticker and exchange as pending. Its investors would own shares in a fund using options rather than shares in the existing ZCSH product or ZEC itself.
The proposal follows the Aug. 25 launch of ZCSH on NYSE Arca. Options on its shares began trading Sept. 8, according to the new filing. Grayscale plans to use those contracts to build the income funds exposure, giving the proposal a different purpose from the ETF that holds zcash.
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How the Income Strategy Would Work
To pursue both zcash exposure and income, the new fund would buy call options and sell put options linked to a zcash ETF. That combination is designed to approximate the ETFs price movements without holding its shares. The fund would also sell call options to collect premiums, an approach known as a synthetic covered call strategy.
Those premiums come with a trade-off. Selling a call can limit gains above its strike price, even as the seller retains exposure to losses if the referenced asset declines. The filing says Grayscale would select strike prices based on market conditions. Investors could therefore receive distributions while capturing less of a sharp increase in ZCSHs share price.
The payout plan does not set a fixed yield. Grayscale says the amount and character of distributions would vary, and the fund may return investors‘ own capital as part of a payment. Its planned use of options also differs from buying an ETF for exposure to the asset it holds: the income fund’s results may diverge from movements in ZEC.
Proposal Extends Grayscales Zcash Products
The filing adds zcash to a growing set of products that use crypto-linked options to seek income. Blackrocks bitcoin covered-call ETF, which began trading on Nasdaq in June, similarly centers on collecting option premiums. Grayscales zcash proposal specifically calls for payments every two weeks and relies on options tied to exchange-traded zcash products.
The existing ZCSH fund has grown rapidly since its August listing. Grayscale reported that its zcash ETF reached $1 billion in assets this month, although asset growth reflects changes in ZECs price as well as investor flows. The proposed income fund would create another way to gain exposure to that market, with a different return profile.
The prospectus remains preliminary, and the income fund cannot be sold until its registration statement becomes effective. Its management fee, ticker, and exchange are still listed as blanks in the filing. Grayscale has requested an effective date 75 days after filing, subject to the registration process.