Bitcoin ETF Options Attract $2B on Day One, Shifting BTC's Market Structure

IBIT options went live Tuesday in a first, a move that market participants widely expect to draw more institutional interest in bitcoin (BTC).

Options tied to BlackRock’s bitcoin exchange-traded fund IBIT clocked nearly $2 billion in notional exposure on their debut, a figure some analysts describe as “unheard of” for those metrics.

“1st day of options is just shy of $1.9 billion in notional exposure traded via 354k contracts. 289k were Calls & 65k were Puts,” Bloomberg Intelligence analyst James Seyffart said in an X post. “That's a ratio of 4.4:1.”

“These options were almost certainly part of the move to the new #Bitcoin all time highs today,” Seyffart added, highlighting bitcoin’s move to new record nights in late U.S. hours Tuesday.

Options on several of the 11 spot bitcoin ETFs on several exchanges were approved by the U.S. SEC in September, and more options products are expected to be available in the coming days.

Unpacking Options

Options are financial derivatives that give the buyer the right, but not the obligation, to buy (in the case of a call option) or sell (in the case of a put option) an underlying asset at a specified price on or before a certain date.

A call option gives the holder the right to purchase an asset at a specific price, known as the strike price, within a set time frame. A put option gives the holder the right to sell at the strike price within the specified period.

Call options are purchased when expecting price increases; if correct, traders can exercise the option to buy at the strike price or sell it for a profit. Put options serve as insurance against price drops or for betting on declines, enabling selling at the strike price if it exceeds the market value.

How IBIT Options Could Change BTC Market Structure

The use of options opens up a wide range of trading strategies for professional investors, which could increase market liquidity and alter the market structure.

Institutions that are particularly hesitant to trade on offshore unregulated avenues can use IBIT options to hedge bullish exposure while generating additional income by selling calls. Speculators can use IBIT call and put options to benefit from price movements, avoiding the hassle of owning the underlying asset.

Traders can also earn premiums by selling options, which is a passive income, especially in a stable or slowly declining market where the options might expire worthless. Such strategies are already popular among traders on leading options exchange Deribit.

Regarding the impact on market structure, some analysts believe that the expected overwriting of IBIT calls would reduce implied volatility over the long term. In the short term, especially during a bull run, investor demand for calls could set the stage for a GameStop-like gamma squeeze.

Market structure describes how trading involves participants like investors and traders, how assets are bought or sold, and the regulations around specific asset classes.

Options provide more ways to trade, making it easier for professional investors to buy or sell without big price changes. Tracking options data could show what traders think will happen to prices, helping everyone understand market expectations.

Options can also predict and cause price swings near expiry, creating an opportunity for short-term trading.