Increased Options Contract Limit for iShares Bitcoin Trust ETF
Nasdaq has filed to increase the current options contract limit of the iShares Bitcoin Trust ETF (IBIT) from 25,000 to 250,000 contracts, representing an exercisable risk of 2.89%, according to a Jan. 6 SEC filing.
Current Limit vs. Exercisable Risk
The current limit of 25,000 contracts only represents 0.4% of exercisable risk for the spot Bitcoin (BTC) exchange-traded fund (ETF). Jeffrey Park, head of alpha strategies at Bitwise, has expressed concerns about this low number.
Understanding Contract Limits
A contract limit caps the number of contracts that can be held on the same side of the market. Nasdaq’s decision to raise the limit is based on volume growth and the potential for increased investor participation in the options markets.
“The Exchange also has no reason to believe that the growth in trading volume in IBIT will not continue. Rather, the Exchange expects continued options volume growth in IBIT as opportunities for investors to participate in the options markets increase and evolve.”
Positive Outlook on Approval
Park is optimistic about the application’s approval, stating that the facts are in favor of Nasdaq and BlackRock. The approval of options trading in spot Bitcoin ETFs is seen as a positive development for crypto adoption, attracting more sophisticated traders and adding liquidity to the market.
Comparing Contract Limits
Despite the approval, Park notes that crypto still receives special treatment for trading compared to traditional investment vehicles. He highlights the 2,000-contract limit for CME Bitcoin futures contracts, equivalent to 175,000 contracts for IBIT. Park believes IBIT qualifies for 400,000 options contracts, equivalent to 7% of outstanding shares as of Nov. 19, 2024.
A low cap for options contracts can create unusual market dynamics, such as arbitrage between spot Bitcoin ETF shares.
