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Should You Trade Options on Spot Bitcoin ETFs?

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Adam Hayes
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Adam Hayes, Ph.D., CFA, is a financial writer with 15+ years Wall Street experience as a derivatives trader. Besides his extensive derivative trading expertise, Adam is an expert in economics and behavioral finance. Adam received his master's in economics from The New School for Social Research and his Ph.D. from the University of Wisconsin-Madison in sociology. He is a CFA charterholder as well as holding FINRA Series 7, 55 & 63 licenses. He currently researches and teaches economic sociology and the social studies of finance at the Hebrew University in Jerusalem.

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Updated November 25, 2024
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Spot Bitcoin exchange-traded funds (ETFs) are a type of ETF that holds Bitcoin with the aim of tracking its current or spot price. In the fall of 2024, the U.S. Securities and Exchange Commission (SEC) approved the sale of options on spot Bitcoin ETFs on American exchanges. Investors can use these derivatives to bet on or hedge against Bitcoin's price moves through regulated markets without directly owning the cryptocurrency. 

Like traditional stock options, spot bitcoin ETF options give investors the right, but not the obligation, to buy or sell shares of types of crypto ETFs. However, the contracts combine two complex elements: the volatility of cryptocurrency markets and the intricacies of options trading. Below, we'll explore these characteristics and the risks of trading them.

Key Takeaways

  • Best suited for sophisticated investors who understand the significant risks, investors can trade options on spot bitcoin ETFs to hedge or speculate on the price moves of their shares.
  • The SEC approved options on spot bitcoin ETFs that include the ARK 21Shares Bitcoin ETF and Grayscale Bitcoin Trust (GBTC).
  • You can trade these options through standard brokerage accounts without the need for cryptocurrency wallets and the like.
  • A spot Bitcoin ETF holds actual Bitcoin and is designed to hold an equivalent amount of the underlying asset represented by the ETF.
Crypto investor trading at home Crypto investor trading at home

hobo_018 / Getty Images

What Are Spot Bitcoin ETF Options?

Spot Bitcoin ETF options are financial contracts that give you the right, but not the obligation, to buy (call) or sell (put) shares of the underlying asset, which is the Spot Bitcoin ETFs at a pre-given price before a set expiration.

Investors can trade these derivatives to gain exposure to Bitcoin's price moves without directly holding the cryptocurrency or even the ETF shares themselves.

The SEC approved options on the following ETFs:

  • BlackRock's iShares Bitcoin Trust (IBIT)
  • Grayscale Bitcoin Trust (GBTC)
  • ARK 21Shares Bitcoin ETF (ARKB)
  • Fidelity Wise Origin Bitcoin Fund (FBTC)
  • Bitwise Bitcoin ETF (BITB)

Another Way To Trade in Crypto on Regulated Exchanges

Options on spot bitcoin ETFs are like traditional equity options but with risks and prospects tied to the bitcoin market. Unlike trading cryptocurrencies directly or using derivatives on digital exchanges, these instruments offer a standardized, regulated framework that works through existing brokerage accounts.

Investors can use these instruments in several ways:

  • Speculate on bitcoin's price movements while risking less capital than directly purchasing shares in the ETFs or bitcoin directly.
  • Protect existing bitcoin or bitcoin ETF investments against price declines.
  • Generate additional income from holdings through strategies like covered calls.

Benefits of Spot Bitcoin ETF Options

Spot Bitcoin ETF options offer several advantages:

  • Risk management: Investors can use put options to protect their Bitcoin ETF holdings against price declines.
  • Leverage: Call options can be used to control a larger position with a smaller initial investment.
  • Institutional participation: The regulated nature of these products may attract more institutional investors, potentially increasing market liquidity
  • Regulation: Trade through regulated exchanges
  • Clearing and Settlement: There are the benefits of having a standardized clearing processes
  • Custody: Avoid cryptocurrency exchange risks and having to manage a crypto wallet.
  • Familiarity: For traditional investors, these options provide exposure to Bitcoin through familiar financial instruments.

Risks of Spot Bitcoin ETF Options

Like all options for ETFs, but especially those involving cryptocurrency, there are risks:

  • Increased volatility: Because of Bitcoin's inherent volatility, options' premium costs could be higher than traditional equity or ETF options.
  • Complexity: Options strategies require a sophisticated understanding of the cryptocurrency market and options trading.
  • Time decay: Options lose value over time, which can work against holders of long options positions.
  • Market hours: Unlike the 24/7 cryptocurrency market, ETF options are limited to stock market hours.
  • Liquidity: Newer markets may have limited trading volume.

January 10, 2024

The date when Spot Bitcoin ETFs (which hold actual crypto tokens) began trading in the U.S., following SEC approval.

Who Should Trade Spot Bitcoin ETF Options?

The intersection of cryptocurrency volatility and options complexity means these instruments require significant market knowledge to trade effectively. While they offer prospects for portfolio management, they're best suited for investors who understand both the technical aspects of options trading and the fundamentals driving bitcoin markets.

The Bottom Line

The SEC's approval of Spot Bitcoin ETF options brings another set of cryptocurrency investment products to U.S. markets. These instruments provide sophisticated investors with tools for risk management and additional returns within regulated markets. However, Bitcoin's volatility and the complexity of options trading mean these products are best suited for experienced traders with a clear strategy and the know-how to manage their risk.

Article Sources
Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy.

  1. U.S. Securities and Exchange Commission. "Release No. 34-101387; File No. SR-CBOE-2024-035."

  2. U.S. Securities and Exchange Commission. "Release No. 34-101386; File No. SR-NYSEAMER-2024-49."

  3. U.S. Securities and Exchange Commission. "Statement on the Approval of Spot Bitcoin ETF Products."

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