Nasdaq has recently filed a proposal to increase the options contract limit for the iShares Bitcoin Trust ETF (IBIT) from 25,000 to 250,000 contracts. This change would represent an exercisable risk of 2.89%, as stated in a SEC filing on January 6th.
The current limit of 25,000 contracts only accounts for 0.4% of exercisable risk for the spot Bitcoin exchange-traded fund (ETF). Jeffrey Park, head of alpha strategies at Bitwise, previously expressed his belief that this number is quite low.
A contract limit sets a cap on the number of contracts that can be held on one side of the market. Nasdaq’s proposal to increase this limit is based on the growth in trading volume of IBIT and the potential for continued options volume growth as opportunities for investors to participate in the options markets expand.
Park is optimistic about the outcome of the application and believes that the facts are in favor of Nasdaq and BlackRock. He also highlighted that the approval of options trading in spot Bitcoin ETFs is a significant development for crypto adoption, attracting more sophisticated traders and increasing liquidity in the market.
IBIT’s options debut saw over $446 million moved in its first trading hours, which was deemed remarkable by Bloomberg senior ETF analyst Eric Balchunas. Despite the approval, Park mentioned that the crypto market still receives special treatment for trading compared to traditional investment vehicles.
He pointed out that the CME Bitcoin futures contracts have a limit of 2,000 contracts, equivalent to 175,000 contracts for IBIT. Park believes that IBIT could qualify for 400,000 options contracts, which would represent 7% of outstanding shares as of November 19, 2024.
Having a low cap for options contracts can create unusual market dynamics, such as arbitrage between spot Bitcoin ETF shares. Overall, Nasdaq’s proposal to increase the contract limit for IBIT could have a positive impact on the market and further enhance the options trading landscape for Bitcoin ETFs.