BlackRock Spot Bitcoin Exchange-traded funds have been a huge hit since their launch, attracting billions of dollars from investors seeking exposure to cryptocurrencies without the hassle of a crypto wallet or exchange. Traders and analysts carefully track the fund’s inflows to gauge the institution’s position in the market.
Now, they may have to do the same with ETF-related options as activity surged during Thursday’s crash. According to one observer, the record activity stemmed from the hedge fund collapse, while others disagreed, saying daily market dislocation was the catalyst.
What really stands out
Options trading volume surged to a record 2.33 million contracts on Friday, with slightly more puts than calls, as the ETF fell 13% to its lowest level since October 2024.
The fact that put options traded higher than calls on Thursday points to higher demand for downside protection, which is typical during price sell-offs.
Options are derivative contracts that provide built-in insurance against price movements in an underlying asset (in this case, IBIT). You pay a small fee (premium) for the right (but not the obligation) to buy or sell IBIT at a set price before the deadline or expiration.
Call options allow you to lock in IBIT at today’s set price for a small premium. If it subsequently rebounds above that level, you can buy low and sell for a profit; if not, you only lose the premium. The put locks in the sale of IBIT at that price. If the price falls below, you sell at a higher price and earn the difference; otherwise, you only lose the premium. Call options offer a leveraged upside bet, while puts offer protection against downside downside.
Another eye-catching figure was the record $900 million in premiums paid by IBIT options buyers that day, the highest single-day total ever. In other words, this is equivalent to the market capitalization of several of the top 70 cryptocurrencies.
Speculative theory: Record activity linked to hedge fund collapse
A post by market analyst Parker went viral on X, arguing that the $900 million in premiums was due to the collapse of a large hedge fund(s) that had almost 100% of its capital invested in IBIT. Funds typically focus on one asset to avoid spreading risk elsewhere.
Parker’s post said the fund initially bought cheap “out-of-the-money” call options on IBIT after the October crash, anticipating a quick recovery and larger rally.
These out-of-the-money call options are like cheap lottery tickets, priced well above the current price of the underlying asset. If the asset rebounds above these levels, these calls will make a lot of money; if they don’t, the buyers of these calls will lose the initial premium paid.
However, the fund purchased these call options with borrowed money. As IBIT continues to decline, they double down.
On Thursday, as IBIT collapsed, the value of these margin calls plummeted and brokers issued margin calls to the fund, asking for cash/collateral. The fund lost money elsewhere, was unable to provide the same capital, and ended up dumping a large amount of IBIT stock on the market, causing spot trading volume to reach a record $10 billion.
The fund also scrambled to replace expiring calls or unwind loss-making calls, resulting in total premium payments reaching a record $900 million. Essentially, Parker tied record trading activity to a scramble by one or a few large players, rather than routine trades.
Shreyas Chari, Director of Trading and Head of Derivatives at Monarq Asset Management, said it best: “Yesterday’s systemic sell-off in major currency funds may be related to margin calls, especially among ETFs with the highest IBIT for crypto exposure.”
“There were rumors that a short options entity had to sell the underlying asset more aggressively after the 70k price and then the drop below 65k, which could be related to the liquidation level. This exacerbated the drop to 60k,” he explained in a Telegram chat.
Options experts disagree
Tony Stewart, founder of Pelion Capital and an options expert, believes IBIT options contributed to the market chaos, but he doesn’t blame the entire collapse and record activity on the collapse of a single fund.
Citing Amberdata on X, he said $150 million of the $900 million premium came from buying back the puts. In short, as IBIT plummeted and these puts soared in value, traders who had previously sold (short) the puts faced significant losses, so they bought them back to reduce their risk.
Those closes were “definitely painful,” he said on
Essentially, to Stewart, record activity is just confusing noise in a generally panicked market rather than conclusive evidence pointing in a single direction. “this [hedge fund blowup theory] From an options perspective, the jury is still out. And it doesn’t seem to be big enough,” he concluded.
Still, he acknowledged that some activity may be hidden in off-market (privately negotiated) deals.
in conclusion
Parker connects the dots, pointing to the hedge fund collapse, while Stewart challenges the same idea with hard data.
Regardless, this incident highlights that IBIT options are now big enough to be influential, and traders may want to track them like ETF inflows.
