Benefits of Options Trading With Bitcoin ETFs

Key Points

1) In October, the SEC approved options trading for several new Bitcoin ETFs. This development introduces a high-risk, high-reward investment opportunity in an already volatile market.

2) Investors looking to capitalize on Bitcoin ETF options trading should be mindful of the associated risks.

3) With careful management of options trades, there is significant potential for substantial rewards.

In late October 2024, the rapidly growing Bitcoin ETF industry took a significant step toward integration with the traditional financial market as the SEC approved proposals from both NYSE American and Cboe to list and trade options on several Bitcoin ETFs.

There are now approximately two dozen Bitcoin ETFs available, encompassing both those that hold actual Bitcoin as spot funds and those that focus on Bitcoin futures. The SEC's October announcement allows options trading on only a select few of these funds. Investors looking to leverage this new options strategy in Bitcoin ETFs should note that, as of the end of October 2024, the following funds have been approved for options trading:

1) iShares Bitcoin Trust NASDAQ: IBIT
2) Grayscale Bitcoin Trust NYSEARCA: GBTC
3) ARK 21Shares Bitcoin ETF CBOE: ARKB
4) Fidelity Wise Origin Bitcoin Fund NYSEARCA: FBTC
5) Grayscale Bitcoin Mini Trust NYSEARCA: BTC
6) Bitwise Bitcoin ETF Trust NYSEARCA: BITB

Benefits of Options Trading With Bitcoin ETFs

A key advantage of Bitcoin ETFs compared to holding Bitcoin directly is that these funds provide some insulation from the complexities of managing a wallet and executing trades on a cryptocurrency exchange. Bitcoin ETFs offer investors exposure to Bitcoin and a means to track the price of the leading cryptocurrency by market value, all while helping to mitigate risk.

Options trading with Bitcoin ETFs operates similarly to options trading for other securities, allowing investors to buy or sell shares of these ETFs at predetermined prices in the future. This mechanism enables investors to speculate on whether the price of the fund—reflecting the value of actual Bitcoin or Bitcoin futures—will rise or fall.

Bitcoin ETF options also serve as a risk management tool. For those with significant holdings in Bitcoin ETFs, put options can provide protection against sudden price drops. Meanwhile, call options allow investors to bet on potential price increases without requiring the same upfront investment in Bitcoin ETFs.

Caution Wins the Day

Traditional options trading is generally recommended only for investors with a deep understanding of the associated risks and potential rewards. This is especially true for options trading in Bitcoin ETFs, given the inherent volatility of these funds. However, the SEC's involvement in regulating options trading for crypto ETFs may provide some reassurance to investors considering these products.

For those willing to embrace the risks, there are significant potential rewards. While Bitcoin has increased by about 12% over the past month, some analysts believe it could rise even further if institutional investors are compelled to purchase shares of Bitcoin ETFs to hedge call options, potentially leading to a gamma squeeze.

When considering shares, indices, forex (foreign exchange) and commodities for trading and price predictions, remember that trading CFDs involves a significant degree of risk and could result in capital loss.

Past performance is not indicative of any future results. This information is provided for informative purposes only and should not be construed to be investment advice. Trading cryptocurrency CFDs and spread bets is restricted for all UK retail clients.