Nasdaq proposes raising IBIT options contract limit for traders

Nasdaq filed to raise the current options contract limit of the iShares Bitcoin Trust ETF (IBIT) from 25,000 to 250,000 contracts, representing an exercisable risk of 2.89%, according to a Jan. 6 SEC filing.

According to the filing, the current limit represents only 0.4% of exercisable risk for the spot Bitcoin (BTC) exchange-traded fund (ETF). Jeffrey Park, head of alpha strategies at Bitwise, had previously stated that this is a low number.

A contract limit caps the number of contracts that can be held on the same side of the market. Since it varies by ETF based on the number of outstanding shares and trading volume, Nasdaq’s requirement cited volume growth as a potential driver of the SEC’s approval.

According to the document:

“The Exchange also has no reason to believe that the growth in trading volume in IBIT will not continue. Rather, the Exchange expects continued options volume growth in IBIT as opportunities for investors to participate in the options markets increase and evolve.”

Park said he is optimistic that the application will have a positive outcome. He added that the facts have always been on Nasdaq and BlackRock’s side.

Treated differently

According to analysts, the approval of options trading in spot Bitcoin ETFs was an important development for crypto adoption as it attracts more sophisticated traders and consequently adds more liquidity to the market.

IBIT’s options debut moved over $446 million in its first trading hours, which Bloomberg senior ETF analyst Eric Balchunas highlighted as remarkable, calling it “a ton” for a launch day.

However, despite the approval, Park stated that crypto still receives special treatment for trading, comparing IBIT’s contract limit with traditional investment vehicles.

He cited CME Bitcoin futures contracts’ 2,000-contract limit, equivalent to 175,000 contracts for IBIT.

Moreover, despite requiring a raise to a 250,000-contract limit, Park believes IBIT qualifies for 400,000 options contracts, equivalent to 7% of outstanding shares as of Nov. 19, 2024.

A low cap for options contracts creates “unusual market dynamics,” such as arbitrage between spot Bitcoin ETF shares.