Nasdaq has taken steps to increase the current limit of options contracts for the iShares Bitcoin Trust ETF (IBIT) from 25,000 to 250,000, according to a filing made with the Securities and Exchange Commission (SEC) on January 6. This substantial tenfold increase represents an exercisable risk factor of 2.89%.
As it stands, the current limit amounts to just 0.4% of the exercisable risk for the spot Bitcoin (BTC) exchange-traded fund (ETF). This, according to Jeffrey Park, head of alpha strategies at Bitwise, is a low figure.
The contract limit serves to cap the number of contracts that can be held on the same side of the market. This limit varies by ETF and is dependent on the number of outstanding shares and the trading volume. Nasdaq’s recent filing pointed to volume growth as a potential driver for the SEC’s approval of the increase.
The filing stated, “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.”
Park is hopeful that the application for the increase will receive approval, noting that the facts have always been on the side of Nasdaq and BlackRock.
Despite this move, crypto trading is still viewed differently compared to traditional trading, according to Park. He compared IBIT’s contract limit to traditional investment vehicles, mentioning CME Bitcoin futures contracts’ 2,000-contract limit, which is equivalent to 175,000 contracts for IBIT.
Park believes that IBIT qualifies for 400,000 options contracts, equivalent to 7% of outstanding shares as of November 19, 2024. This is more than the proposed increase to 250,000 options contracts.
The current low cap on options contracts has led to some “unusual market dynamics,” such as arbitrage between spot Bitcoin ETF shares.
The approval of options trading in spot Bitcoin ETFs is seen as a significant development for crypto adoption. It attracts more sophisticated traders and adds more liquidity to the market. Bloomberg senior ETF analyst Eric Balchunas was quick to highlight the success of IBIT’s options debut, which moved over $446 million in its initial trading hours, an impressive amount for a launch day.
