BlackRock Bitcoin ETF options approved by SEC, creates hopes of gamma squeeze

The US Securities and Exchange Commission (SEC) has approved Nasdaq to list and trade options on BlackRock’s spot Bitcoin exchange-traded fund (ETF) product, iShares Bitcoin Trust (IBIT).

Options trading enables investors to buy or sell assets at a pre-determined price, helping them speculate on price movements. So, this decision marks another step toward broadening the range of Bitcoin-linked derivatives, offering investors more tools to manage exposure to the flagship crypto asset.

However, the product still requires the approval of the Options Clearing Corporation (OCC) and the Commodity Futures Trading Commission (CFTC).

More Bitcoin ETF-based products

Bloomberg ETF analyst Eric Balchunas noted that other major firms might soon receive approval for their own Bitcoin ETF options.

He said:

“Huge win for the the bitcoin ETFs (as it will attract more liquidity which will in turn attract more big fish).”

Nate Geraci, President of ETF Store, suggested that approving options for spot Bitcoin ETFs could lead to the development of more Bitcoin ETF-based products.

Geraci stated:

“Expect a flurry of various ETF filings like Bitcoin buffer or defined outcome ETFs, Bitcoin premium income or yield max (covered call) ETFs, Bitcoin tail risk ETFs, Bitcoin convexity ETFs.”

‘Gamma squeeze possibility’

Jeff Park, head of alpha strategies and portfolio manager at asset management firm Bitwise, pointed out that Bitcoin options will likely generate strong institutional demand, setting the stage for a gamma squeeze.

A gamma squeeze occurs when stock prices rise rapidly because market makers buy more stock to cover their options positions, driven by high demand for call options.

In Bitcoin’s case, Park explained that the Bitcoin ETF options market introduces regulated leverage on a supply-constrained asset. He added:

“With Bitcoin options, investors can now make duration-based portfolio allocation bets, especially for long-term horizons. There’s a good chance that owning long-dated OTM calls as premium spend will give investors more bang for their buck than a fully-collateralized position that could drop by 80% over the same period.”

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