BlackRock Spot Bitcoin The exchange-traded fund has been a huge success since its launch, attracting billions of investors seeking exposure to cryptocurrency without the hassle of crypto wallets or exchanges. Traders and analysts religiously follow inflows into the fund to assess how institutions are positioning themselves in the market.
Now they might have to do the same with ETF-linked options, as activity soared during Thursday’s crisis. According to one observer, the record activity was due to a hedge fund explosion, while others disagreed, citing routine market chaos as a catalyst.
What really stood out
On Friday, as the ETF plunged 13% to its lowest level since October 2024, options volume soared to a record 2.33 million contracts, with puts narrowly outpacing calls.
The fact that put options saw more volume than calls on Thursday indicates greater demand for downside protection, which is typical during price sell-offs.
Options are derivative contracts that provide built-in insurance against swings 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 certain price before a deadline or expiration date.
A call option allows you to lock IBIT at a fixed price today for a small premium. If it then rises above that level, you buy low and sell for a profit; If not, you will only lose the premium. A put option locks the sale of IBIT at that price. If it slides down, you sell high and keep the difference; otherwise you will lose only the premium. Call options offer leveraged upside bets, while put options protect against downside declines.
Another notable figure was the record $900 million in premiums paid by IBIT options buyers that day, the highest single-day total in history. To put it in context, that is equivalent to the market capitalization of several crypto tokens that rank beyond the top 70.
Speculative theory: record activity linked to hedge fund explosion
A publication by market analyst Parker, which has gone viral on Funds typically focus on a single asset, avoiding spreading risk exposure elsewhere.
Parker’s post alleges that this fund initially bought cheap “out-of-the-money” call options on IBIT following the October crash, anticipating a quick recovery and further rally.
These OTM calls are like cheap lottery tickets at levels well above the current price of the underlying asset. If the asset breaks these levels, these calls generate a significant amount of money; If not, buyers of these calls lose the initial premium paid.
However, the fund purchased these call options using borrowed money. As IBIT continued to fall, they doubled down.
On Thursday, when IBIT crashed, these calls plummeted in value and brokers attacked the fund with margin calls demanding cash/collateral. The fund, having wasted money elsewhere, was unable to provide the same and ended up dumping large amounts of IBIT shares on the market, resulting in record spot volume of $10 billion.
The fund also desperately replaced expired or closed-loss calls, resulting in a record $900 million in total premium payments. Essentially, Parker associates record activity with one or a few massive players struggling, not with routine transactions.
Shreyas Chari, COO and head of derivatives at Monarq Asset Management put it best: “Systematic selling in major companies yesterday was likely linked to margin calls, especially in the ETF with the largest cryptocurrency exposure IBIT.”
“Rumors spread about a short options entity that had to sell the underlying much more aggressively after 70k and then 65k were broken, probably tied to liquidation levels. This exacerbated the move up to 60k,” he explained in a Telegram chat.
Options Expert Disagrees
Tony Stewart, founder of Pelion Capital and options expert, believes IBIT options added to the market chaos, but he doesn’t go so far as to blame a single fund for the entire crisis and record activity.
He argued in X, citing Amberdata, that $150 million of the $900 million in premiums came from buybacks of puts. In short, traders who had previously sold (short) puts faced significant losses when IBIT crashed and those puts increased in value, so they bought them back to reduce their risk.
Those were “certainly painful” closes, he said in X, adding that the remaining portion of the $900 in premiums comprised mostly smaller trades, which is pretty standard for a hectic trading day.
In essence, for Stewart, the record activity is just the confusing noise of a widely panicked market, not smoking evidence pointing to a single path. “This [hedge fund blowup theory] It is not conclusive from an options point of view. It also does not seem sufficient in size,” he concluded.
Still, he acknowledged the possibility that some activity may have been hidden in over-the-counter (privately negotiated) deals.
Conclusion
While Parker connected the dots to point out 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 track them the same way they do ETF inflows.
