SEC Approves Options Trading for BlackRock’s Bitcoin ETF, Focus Shifts to Gamma Squeeze Possibility
By: Eva Baxter
The US Securities and Exchange Commission (SEC) has granted its approval for Nasdaq to list and trade options on BlackRock's spot Bitcoin exchange-traded fund (ETF) product, iShares Bitcoin Trust (IBIT). This landmark decision enables investors to buy or sell assets at predetermined prices, facilitating speculation on price movements. This pivotal step broadens the range of Bitcoin-linked derivatives, offering investors more sophisticated tools to manage exposure to the flagship crypto asset.
Although this decision marks significant progress, the product still awaits the final nod from the Options Clearing Corporation (OCC) and the Commodity Futures Trading Commission (CFTC). It is anticipated that other major firms will soon look to secure approvals for their own Bitcoin ETF options, further expanding the landscape of Bitcoin-linked investment instruments.
More Bitcoin ETF-based Products Expected
Bloomberg ETF analyst Eric Balchunas highlighted that the approval by the SEC could attract more liquidity, subsequently encouraging the entry of larger institutional investors. Nate Geraci, President of ETF Store, also emphasized the potential for an expanding array of Bitcoin ETF-based products following this approval. These could include Bitcoin buffer or defined outcome ETFs, Bitcoin premium income or yield max (covered call) ETFs, Bitcoin tail risk ETFs, and Bitcoin convexity ETFs.
Gamma Squeeze on the Horizon?
Jeff Park, head of alpha strategies and portfolio manager at Bitwise, pointed out that the introduction of Bitcoin options would likely stimulate strong institutional demand, setting the stage for a potential gamma squeeze. A gamma squeeze occurs when high demand for call options leads market makers to buy more stock to cover their positions, causing prices to surge.
Park elaborated that the Bitcoin ETF options market introduces regulated leverage on a supply-constrained asset. Investors can now make duration-based portfolio allocation bets, especially for long-term horizons. The strategic use of long-dated out-of-the-money (OTM) calls allows for potentially greater returns compared to fully-collateralized positions, which might face significant volatility.
As the market eagerly awaits the final approvals from the OCC and CFTC, the potential for new Bitcoin ETF products and a gamma squeeze underscores the growing institutional interest in Bitcoin and its derivatives. It signifies another crucial milestone in the maturation of cryptocurrency as a mainstream financial asset.
