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Vinter Wavebridge Bitcoin Covered Call Index
Index Methodology

# Introduction

The Vinter Wavebridge Bitcoin Covered Call Index (“BTCC”) tracks the performance of a covered call strategy applied to Bitcoin ("BTC"): go long BTC and sell an out-of-the-money call option, both held in an equal notional amount. The call option is held until maturity i.e. for one month. The index is rebalanced monthly; the rollover date is the last Friday of each month, which is the expiry date of the call options. It is assumed that option premiums from selling call options are fully reinvested. The index is calculated and disseminated on a daily basis.
Wavebridge, Inc ("Wavebridge Labs") is a quantitative financial focus company, developing software that helps investors and traders focus on their investment strategies. They have developed a quant-based platform that digitally transforms all asset management and operational tasks. Wavebridge provides tools that help investors to do research, simulation, risk management, monitoring, execution, and reporting.
Invierno AB ("Vinter") is a pioneering index provider specialized in crypto assets, playing a key role in the emerging crypto ETF industry. The firm collects digital asset data from hundreds of sources, transforming proprietary strategies into investable products. Learn more at vinter.co.
This methodology clearly determines what constitutes an active instrument for the purposes of the index, and establishes the priority given to different types of input data. The methodology takes into account factors like the size and liquidity of the market, the transparency of trading, the positions of market participants, market concentration, and the adequacy of any sample to represent the market or economic reality that the index is intended to measure.

# Index Construction

## Rationale

The BTCC offers (i) exposure to BTC, and (ii) steady incomes when the market is flat.
A European call option is a contract that gives the holder the right, but not the obligation, to buy the underlying asset at a strike price on the expiration date of the contract. A monthly covered call position is created by buying the underlying asset and selling a monthly call option. As a result, an option premium is made from selling a call option, which can be a source of income during a sideways market. However, in return, an investor's profit from an increase of the underlying's value will be limited to the strike price of the call option. Due to this limitation of the underlying upside potential, one of the most important parts for making a profitable covered call strategy is to set an appropriate strike price of a call option.
In the traditional stock market, the covered call strategies mainly used are at the money ("ATM") call options with the closest strike price at or above the value of the underlying asset. However, in the case of BTC, this would not be a proper choice as its volatility is known to be appreciable compared to those of traditional stocks. For this reason, the BTCC is computed with the strike price of an ATM or out of the money ("OTM") call option that is chosen by the specific target of premium yield. By doing so, the strategy can provide a relatively stable income.

## Asset Selection

The index is constructed as a combination of a long position of BTC and a short position of a BTC call option.
After the short call position is created, it is required to be held to maturity so that it would be cash-settled against the settlement value. In a derivatives exchange, each option is exercised automatically without action and the settlement value is calculated as a TWAP of the BTC-USD mid-price over the last 30 minutes before the expiry. Following the settlement of the call option, the strike price of the new option is determined and a short position of a call option expiring in the next month starts to be created. This transaction is commonly referred to as a "rollover". The strike price of the new call option will be determined by targeting premium yield. In this step, the size of the long position will be equal to that of the short position in notional amounts. To reflect the process in reality the rollover is assumed to take 2 hours to be completed and the price of an option is given as the TWAP.
On each expiration date, the strike price for the new option is determined as follows: we choose an at-the-money or out-of-the-money call option with the maximum strike price whose option premium is greater than the target yield.

## Calculation

The index value on day
$t$
- denoted
$I(t)$
- is given by
$I(t) = I(t_0) \cdot (1+R(t))$
where
$t_0$
is the most recent rebalancing date and
$R(t)$
is the month-to-date return of the covered call strategy. For a non-rollover date, the month-to-date return
$R(t)$
is given by
$1+R(t) = \frac{U_e(t)-C_e(t)}{U_e(t_0)-C_e(t_0)}$
where
• $U_a(t)$
is the average value of the underlying, calculated once per month on the rebalancing date as a TWAP of the Bitcoin price in 8:00-10:00 UTC.
• $C_a(t)$
is the average value of the call, calculated once per month on the rebalancing date as a TWAP of the call option price in 8:00-10:00 UTC. For a 2% yield strategy
$C_a(t)\approx 2\% \cdot U_a(t)$
dollars - since the actual option price in BTC differs slightly from the target yield.
• $U_e(t)$
is the end of day value of the underlying asset at 4 pm London Time. It is calculated daily as a TWAP of the BTC price in 3-4 pm London Time. The BTC price is obtained by
1. 1.
obtaining the mid price on selected exchanges,
2. 2.
removing exchanges with delayed data,
3. 3.
calculating the median price,
4. 4.
truncating the values that is +/-0.5% away from the median to that limit threshold, and
5. 5.
taking the average.
• $C_e(t)$
is the end of day value of the shorted call option at 4 pm London Time. It is calculated daily as a TWAP of the call option price in 3-4 pm London Time. The call option price is the mid price which is the average of the best bid and ask price if both values exists. If not, the option price is set to the intrinsic value of the option.
The return calculation on a rollover date is described next.

## Rebalancing

Define
$U_s(t)$
as the settlement value of the underlying at the expiration time, calculated as a TWAP of the BTC price from 7:30 to 8:00 on the rebalancing date.
On the monthly rebalancing, the sold call is rolled over. On the rollover, there are three stages.
1. 1.
First, the value of the underlying at settlement is
$U_s(t)$
dollars and the expiring option will be settled for
$max[0, U_s(t)-K]$
dollars. This dollar value is compared to the dollar value after the previous month's rebalancing date
$t'$
.
2. 2.
Second, there is a return created from the exposure of the underlying asset until the next option is completely sold, given by
$U_a(t) / U_s(t)$
.
3. 3.
Third, once this process is done, the underlying is entirely covered by the short position of a call option and we calculate the return of the position between 10:00 UTC and 4 pm London time.
Thus, for a rollover date, the return is computed as a combination of these three returns
$(1 + R_{1}) \cdot (1 + R_{2}) \cdot (1 + R_{3})$
which are given by
$1+R_1=\frac{U_s(t)-max[0, U_s(t) - K]}{U_e(t')-C_e(t')}$
$1+R_2 =\frac{U_a(t)}{U_s(t)}$
$1+R_3= \frac{U_e(t)-C_e(t)}{U_a(t)-C_a(t)}.$
Here,
$t'$
refers to the previous rebalancing date and
$t$
refers to the current rebalancing date.

# Indexes

## BTCC

Construction
• Asset universe: Bitcoin and Bitcoin Call Options.
• Asset selection: Bitcoin and a Bitcoin Call Option.
• Target yield: 2% per month.
• Fee: 0% per annum.
• Publishing frequency: Daily at 17:00 CET/CEST.
• Rebalancing frequency: Monthly rollover on the last Friday day of the month.
Details
• Currency: USD
• Base date: 2018-04-26
• Base value: 1000.00
• Dissemination: Daily 17:00 CET
• Fee: 0%
Identifiers
• Long name: Vinter Wavebridge Bitcoin Covered Call Index
• Short name: BTCC
• ISIN: SE0016787121
• FIGI: BBG012CPMWS0
• Bloomberg: BTCC
• Refinitiv: .BTCC
• Vinter API: vnwb-btcc-2-d

The Benchmark Administrator is the central recipient of input data with the ability to evaluate the integrity and accuracy of input data on a consistent basis. The Benchmark Administrator is responsible for the development of the indexes and controls all aspects of the provision of benchmarks. The Benchmark Administrator has established a permanent and effective oversight function, governance processes subject to periodic reviews and audits, policies regarding complaints, ethics, conflicts of interest and contingency, and has established a clear internal organizational structure with consistent roles and responsibilities to identify, prevent, disclose, mitigate, and manage conflicts of interest.
The Calculation Agent is an individual or entity that is responsible for determining the value of an index and/or a financial instrument. The Calculation Agent calculates the index values in accordance with the index methodology. Upon the request of the Benchmark Administrator, the Calculation Agent shall provide all information available on the composition and details of the calculation of the requested index.
The Publication Agent is an entity responsible for the publication of index values, distribution of benchmarks, methodologies and benchmark statements.
Vinter is the benchmark administrator, calculation agent and publication agent of this index family. Vinter is a registered trademark owned by Invierno AB. Invierno AB is the legal name of Vinter.

# Document Versions

Version 1.0 Initial version. September 1, 2021.

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