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

• On their first trading day, IBIT options amassed nearly $2 billion in notional exposure, an unusual volume for new options. More call options were traded compared to puts (4.4:1 ratio), likely contributing to BTC’s new record highs.
• Introducing IBIT options is expected to increase institutional involvement in bitcoin, as options provide new avenues for investment and risk management strategies.
• Options trading on IBIT can lead to shifts in market structure by enhancing liquidity, offering hedging tools, and allowing for speculation on BTC’s price movements, thus influencing market dynamics.

Options tied to BlackRock’s bitcoin exchange-traded fund IBIT racked up nearly $2 billion in notional exposure on their debut, a feat some analysts term “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, pointing to bitcoin move to new record nights in late U.S. hours Tuesday.

IBIT options went live Tuesday in a first, a move that market participants widely expect to draw more institutional interest in bitcoin (BTC). In September, the U.S. SEC approved options for several of the 11 spot bitcoin ETFs on several exchanges, and more options products are expected to be available in the coming days.

Unwrapping Options

Options are financial derivatives that provide 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 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

Using options can open up a plethora of trading strategies for professional investors — which may bring more liquidity to the market and impact the market structure.

Institutions that are particularly averse to trading on offshore unregulated avenues can use IBIT options to hedge bullish exposure while selling calls to generate additional income. Speculators can use IBIT call and put options to benefit from price swings, while bypassing the hassles of owning the underlying asset.

Traders can also sell options and earn premiums, a passive income, which is particularly appealing in a stable or slowly declining market where the options might expire worthless. Such strategies are already popular among traders over leading options exchange Deribit.

Speaking of the impact on the market structure, some analysts are of the opinion that the expected overwriting of IBIT calls would dampen the 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 colloquially describes how trading involves participants like investors and traders, how assets are bought or sold, and the regulations around specific asset classes.

Options give 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.

Near expiry dates, options can also predict and cause price swings — creating a window for short-term trading.