BlackRock’s spot bitcoin exchange-traded funds have been a massive hit since their launch, pulling in billions from investors seeking exposure to the cryptocurrency without the hassle of crypto wallets or exchanges. Traders and analysts religiously track access to the fund to gauge how institutions are positioning themselves in the market.
Now they may have to do the same with options tied to the ETF, as activity exploded during Thursday’s crash. According to one observer, the record activity stemmed from a hedge fund explosion, while others disagreed, citing routine market chaos as a catalyst.
What really stood out
On Friday, as the ETF sank 13% to its lowest level since October 2024, options volume exploded to a record 2.33 million contracts, with buys narrowly outpacing calls.
The fact that puts saw more volume than calls on Thursday indicates higher demand for downside protection, a typical occurrence during price selling.
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 set price within a deadline or expiration.
A call option lets you lock in IBIT at a fixed price today for a small premium. If it rises above that level later, you buy cheap and sell at a profit; if not, you only lose the prize. A put option locks in the sale of IBIT at that price. If it slips below, you sell high and pocket the difference; otherwise you only lose the prize. Calls offer leveraged upside bets, while puts protect against downside drops.
Another eye-catching number was the record $900 million in premiums paid by IBIT option buyers that day – the highest one-day total ever. To put that into context, that’s equivalent to the market cap of several crypto tokens that rank beyond the top 70.
Speculative theory: record activity linked to hedge fund explosion
A post by market analyst Parker, which has gone viral on X, claims that the $900 million premium payments were due to the bust of a large hedge fund (one or a few) with almost 100% of the money invested in IBIT. Funds often focus on just one asset and avoid spreading risk exposure elsewhere.
Parker’s post claims that this fund initially bought cheap “out of the money” call options on IBIT after the crash in October, expecting a quick recovery and bigger rally.
These OTM calls are like cheap lottery tickets at levels well above the current price of the underlying asset. If the asset rises past these levels, these calls make significant money; if it doesn’t, buyers of those calls lose the original premium.
But the fund bought these calls with borrowed money. As IBIT continued to decline, they redoubled their efforts.
On Thursday, when IBIT crashed, those calls fell in value and brokers hit the fund with margin calls demanding cash/collateral. The fund, which had been hemorrhaging money elsewhere, was unable to provide the same and ended up dumping large amounts of IBIT shares on the market, resulting in a record spot volume of $10 billion.
The fund also replaced desperately expiring calls or closed loss-making calls, resulting in a record $900 million in total premium payments. Essentially, Parker associates the record activity with one or a few big players scrambling, not routine trading.
Shreyas Chari, director of trading and head of derivatives at Monarq Asset Management said it best: “Systematic selling across the majors yesterday likely tied to margin calls especially in the ETF with the highest crypto exposure IBIT.”
“Rumours swirled of a short options entity having to sell the underlying much more aggressively after 70k and then 65k broke, likely tied to liquidation levels. This exacerbated the move down to 60k,” he explained in a Telegram chat.
Options expert disagrees
Tony Stewart, founder of Pelion Capital and an options expert, believes that IBIT options added to the market chaos, but does not go so far as to blame a single fund blowup for the entire crash and record activity.
He argued at X, citing Amberdata, that $150 million of the $900 million in premiums came from buybacks of put options. In short, traders who had previously sold (shorted) puts faced significant losses when IBIT crashed and those puts increased in value, so they bought them back to reduce their risk.
Those were “definitely painful” closes, he said at X, adding that the remainder of the $900 in premiums included mostly smaller trades, which is pretty standard for the hectic trading day.
Essentially, for Stewart, the record activity is just the jumbled noise of a broadly panicked market, not a smoking gun pointing down a single path. “This [hedge fund blowup theory] is inconclusive from Option’s point of view. It also doesn’t seem to be enough tbh in size,’ he concluded.
Still, he acknowledged the possibility that some activity could have been hidden in over-the-counter (privately negotiated) deals.
Conclusion
While Parker connected the dots to point to a hedge fund explosion, Stewart challenged the same with hard data.
In any case, this episode highlights that IBIT options are now big enough to exert influence, and traders may want to keep track of them just as they do ETF inflows.
