Surging Volumes in Put Options Linked to BlackRock’s Nasdaq-Listed Spot Bitcoin ETF: A Closer Look
Market Activity
On Friday, a surge in put options linked to BlackRock’s Nasdaq-listed spot bitcoin ETF (IBIT) has raised concerns about bearish sentiment in the market. However, a closer look at the data suggests that this activity may not necessarily be a reflection of investor pessimism.
Cash-Secured Put Selling
According to Greg Magadini, the director of derivatives at Amberdata, most of the activity in the $30 out-of-the-money (OTM) put option expiring May 16 and the $35 put option expiring in January 2026 can be attributed to market participants engaging in "cash-secured put selling." This strategy involves selling puts and simultaneously maintaining cash reserves to buy the underlying asset if the put option is exercised.
In the case of IBIT, sellers of the $35 put option expiring in January 2026 will keep the premium if the ETF stays above that level until expiry. If the price falls below $35, they will be required to buy the ETF at that price while retaining the premium received. Similarly, sellers of the $30 put option expiring in May will face a similar payoff scenario.
Call-Over-Put Skew
While the put options are trading at relatively high levels, the call-put skew remains positive, indicating that implied volatility is richer for calls. This is consistent with the pricing in options tied to bitcoin trading on Deribit. The skew suggests that investors are willing to pay a premium for upside protection, which is not necessarily a bearish signal.
Inflows and Outflows
On Friday, IBIT recorded a net inflow of $393 million, accounting for the majority of the total inflow of $428.9 million across the 11 spot ETFs listed in the US, according to data tracked by Farside Investors.
Conclusion
The surge in put options linked to BlackRock’s Nasdaq-listed spot bitcoin ETF may not necessarily be a reflection of bearish sentiment. Instead, it may be the result of market participants engaging in cash-secured put selling, a strategy that involves selling puts and maintaining cash reserves to buy the underlying asset if the put option is exercised. The positive call-put skew and the inflows into the ETF also suggest that investors are willing to take on some risk in pursuit of potential gains.
FAQs
Q: What is cash-secured put selling?
A: Cash-secured put selling is a strategy where an investor sells a put option and simultaneously maintains cash reserves to buy the underlying asset if the put option is exercised.
Q: What is the purpose of cash-secured put selling?
A: The purpose of cash-secured put selling is to generate income by selling puts and profiting from the premiums received, while also limiting potential losses by maintaining cash reserves to buy the underlying asset if the put option is exercised.
Q: How does the call-put skew impact the market?
A: The call-put skew can impact the market by influencing the prices of options and the underlying asset. A positive skew, as seen in the case of IBIT, can indicate that investors are willing to pay a premium for upside protection, which can drive up the price of the underlying asset.
Q: What are the implications of the surge in put options linked to BlackRock’s Nasdaq-listed spot bitcoin ETF?
A: The surge in put options linked to BlackRock’s Nasdaq-listed spot bitcoin ETF may not necessarily be a reflection of bearish sentiment. Instead, it may be the result of market participants engaging in cash-secured put selling, which can be a bullish strategy.
