The US Securities and Exchange Commission (SEC) has just approval for the listing and trading of options on BlackRock’s spot Bitcoin ETF, the iShares Bitcoin Trust (IBIT).
The approved options on the iShares Bitcoin Trust are physically settled, meaning that when the option is exercised, Bitcoin is delivered to fulfill the contract. These American-style options can be exercised at any time prior to expiration, providing flexibility for traders. According to the SEC, the listing will follow the same rules as options on other exchange-traded funds (ETFs), including position limits and margin requirements.
“I expect more will be approved soon,” said Bloomberg Senior ETF Analyst Eric Balchunas. “Big win for bitcoin ETFs (as it will attract more liquidity, which in turn will attract more big fish). This is a nice surprise in terms of timing, but not a surprise given that James Seyffart and I gave a 70% chance of approval by the end of May.”
The SEC stressed that this approval would allow investors to hedge their Bitcoin positions by using the options market to limit BTC’s inherent volatility. The iShares Bitcoin Trust is the most liquid spot Bitcoin ETF, which helped meet the options trading requirements. The SEC also stressed that there would be extensive oversight mechanisms in place to monitor potential market manipulation and ensure orderly trading.
“IBIT is the most liquid spot Bitcoin ETF and the 11th most liquid ETF in the U.S. by average volume (34,825,921 shares) and the 18th largest by average notional value ($1,246,060,738),” the SEC said. “As of May 22, 2023, IBIT had approximately 193,956 shareholders.”
This approval by the SEC continues the trend of expanding regulated financial products based on Bitcoin, bringing it closer to full integration into the global financial system. The ability to trade options on a spot Bitcoin ETF presents new opportunities for institutional investors who want to engage in the Bitcoin market while maintaining a higher level of risk management.
“Important note: This is just one phase of approval, the OCC and CFTC also need to approve before they are officially listed,” Balchunas continued. “The other two don’t have a ‘clock’ so I’m not sure when they will be approved. Still a big step that the SEC has taken.”