In a striking turn of events, the options market associated with BlackRock”s spot bitcoin exchange-traded fund (ETF) has come under scrutiny following a significant market downturn. The ETF, which has garnered substantial attention since its inception, saw an unprecedented surge in options activity during a market crash on Thursday.
The ETF, trading at $68,627.87, plummeted by 13% to reach its lowest point since October 2024. On that day, the options volume skyrocketed to a record-breaking 2.33 million contracts, with put options slightly exceeding call options. This spike in put options indicates a heightened demand for downside protection, a common response amid price declines.
Options are derivatives that serve as insurance against price fluctuations in the underlying asset. Traders pay a premium for the right to buy or sell the asset at a predetermined price by a specific date. Call options allow buyers to purchase the asset at a fixed price, while put options enable sellers to secure a sale at a set price, thus hedging against potential losses.
Notably, options buyers paid a staggering total of $900 million in premiums on that day, marking the highest single-day total recorded. This figure is significant, as it equates to the market capitalization of various cryptocurrencies ranked beyond the top 70.
Market analyst Parker posited that this surge in activity was linked to the collapse of a hedge fund heavily invested in the ETF. According to Parker, the fund had initially purchased “out of the money” call options following a crash in October, anticipating a rapid recovery. As the market continued to decline, the fund doubled down on its positions using borrowed funds. Eventually, the value of these calls diminished, resulting in margin calls from brokers that forced the fund to liquidate a substantial volume of IBIT shares, contributing to a record $10 billion in spot trading volume.
Contrarily, Shreyas Chari, head of derivatives at Monarq Asset Management, noted that systematic selling was likely tied to margin calls in the ETF with significant crypto exposure. Chari remarked that rumors circulated about a short options entity that had to sell aggressively after critical price levels were breached.
On the other hand, options expert Tony Stewart expressed skepticism about attributing the market chaos solely to a hedge fund”s downfall. He highlighted that a portion of the $900 million in premiums represented the buying back of put options, as traders sought to mitigate losses amid the market”s decline. Stewart characterized the overall activity as part of a broader market panic rather than the result of a singular event.
This incident underscores the growing influence of options tied to the BlackRock ETF, prompting traders to monitor these derivatives alongside traditional ETF inflows moving forward.
