Bitcoin spot from BlackRock Exchange-traded funds have seen huge success since their launch, attracting billions of investors looking to gain exposure to cryptocurrency without the hassle of crypto wallets or exchanges. Traders and analysts religiously track inflows into the fund to assess institutions’ positioning in the market.
They may now have to do the same with ETF-linked options, as activity boomed during Thursday’s crash. One observer says the record activity stems from an explosion of hedge funds, while others disagree, citing usual market chaos as the catalyst.
What really stood out
On Friday, as the ETF fell 13% to its lowest level since October 2024, options volume exploded to a record 2.33 million contracts, with puts narrowly outpacing calls.
The fact that puts saw more volume than calls on Thursday indicates higher demand for downside protection, a typical phenomenon during sell-offs.
Options are derivative contracts that provide built-in insurance against fluctuations in the price of the 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 fixed price before a deadline or expiration.
A call option allows you to lock in IBIT at a fixed price today for a small premium. If it rises above this level later, you buy low and sell for a profit; otherwise, you only lose the premium. A put option locks in the sale of IBIT at this price. If it falls below, you sell high and pocket the difference; otherwise, you only lose the premium. Calls offer leveraged upside bets, while puts protect against downside bets.
Another notable figure was the record $900 million in premiums paid by IBIT options buyers that day, the highest single-day total ever recorded. To put things in context, this is equivalent to the market capitalization of several crypto tokens ranked beyond the top 70.
Speculative theory: record activity linked to the explosion of hedge funds
An article by market analyst Parker, which went viral on Funds often focus on a single asset, avoiding spreading risk exposure elsewhere.
Parker’s post alleges that this fund initially purchased cheap “out-of-the-money” call options on IBIT after the October crash, anticipating a rapid recovery and larger rally.
These OTM calls are like cheap lottery tickets at levels well above the current price of the underlying asset. If the asset exceeds these levels, these calls make a lot of money; if not, buyers of these calls lose the initial premium paid.
However, the fund purchased these call options with borrowed money. As the IBIT continued to fall, they doubled down on their bet.
On Thursday, as IBIT collapsed, the value of these calls fell and brokers hit the fund with margin calls demanding cash/collateral. The fund, having bled money elsewhere, was unable to provide the same and ended up selling large amounts of IBIT stock into the market, generating a record $10 billion in cash volume.
The fund also desperately replaced expired or closed loss-making calls, resulting in a record total of $900 million in premiums paid. Essentially, Parker associates record activity with one or more massive players scrambling, not routine exchanges.
Shreyas Chari, Director of Trading and Head of Derivatives at Monarq Asset Management, said it best: “The systematic selling in the majors yesterday was likely related to margin calls, particularly in ETFs with the most crypto-exposed IBIT.”
“There were rumors about a short options entity that should have sold the underlying much more aggressively after the breakout of 70,000 and then 65,000, probably related to liquidation levels. This exacerbated the decline to 60,000,” he explained in a Telegram conversation.
Options Expert Disagrees
Tony Stewart, founder of Pelion Capital and an options expert, believes that IBIT options contributed to the market chaos, but stops short of blaming the entire crash and record activity on a single fund explosion.
He argued on X, citing Amberdata, that $150 million of the $900 million in premiums came from buying back put options. In short, traders who had already sold (short) put options suffered significant losses when IBIT crashed and the value of those options increased, so they bought them back to reduce their risk.
These were “definitely painful” closes, he said on
In essence, for Stewart, the record activity is just the messy noise of a largely panicked market, not a smoking gun pointing in a single direction. “This [hedge fund blowup theory] is not conclusive from an options point of view. Its size does not seem sufficient either,” he concluded.
He nevertheless recognized the possibility that some activity may have been hidden in over-the-counter (privately negotiated) transactions.
Conclusion
While Parker connected the dots to point to an explosion in hedge funds, Stewart disputed the same thing with hard data.
Regardless, this episode highlights that IBIT options are now large enough to be influential, and traders may want to track them just like they do ETF entries.
