In a surprising twist, surging trading volumes in put options linked to BlackRock’s wildly popular spot bitcoin ETF (IBIT) are being driven not by bearish bets, but by savvy investors seeking to generate passive income and potentially snag bitcoin at a discount.
Puts Volumes Spike, But It’s Not What You Think
On Friday, over 13,000 contracts of the $30 strike put option expiring in May 2025 changed hands as IBIT surged 1.7% to $57.91. The $35 put option expiring in January 2026 also saw whopping volume exceeding 10,000 contracts.
At first blush, such intense activity in out-of-the-money puts – options that only pay off if the underlying asset drops substantially in value – might seem to indicate trader pessimism or hedging demand. But according to derivatives experts, there’s a bullish undertone to this put buying binge.
Cash-Secured Put Selling: The Passive Income Play
“Most of the activity probably stems from market participants looking to generate passive income through ‘cash-secured put selling’ rather than outright purchase of the options as bearish bets,” explained Greg Magadini, Director of Derivatives at crypto analytics firm Amberdata.
In this strategy, traders sell put options while setting aside enough cash to buy the underlying asset (IBIT shares in this case) if the put buyer exercises their right to sell. The put sellers pocket the premium paid by the put buyer, betting the options will expire worthless.
“Savvy traders often write OTM puts to acquire the underlying asset at a lower price while pocketing the premium received by selling the put option. They do so by continuously maintaining the cash required to purchase the asset if the owner of the put option exercises their right to sell.”
– Anonymous industry insider
Capitalizing on the Bitcoin Rally
Magadini noted the surge in put writing was likely coming from “traders who missed the rally” in IBIT and are now trying to position for potential further upside while generating income.
Indeed, with bitcoin up over 70% year-to-date and IBIT rising in lockstep, some investors may feel they missed the boat. Cash-secured put selling allows them to still profit if the rally continues, and acquire IBIT at a predetermined lower price if it pulls back.
- Sellers of the $35 IBIT put expiring in January 2026 keep the premium if IBIT stays above $35 until expiry
- If IBIT drops below $35, they must buy shares at that price – but they still keep the premium
Essentially, it’s a win-win as long as IBIT doesn’t crater below the breakeven point (the strike price minus the premium received). And many traders seem to view the probability of that as quite low given bitcoin’s bullish momentum this year.
Bullish Undertone Confirmed by Skew
Supporting the cash-secured put selling thesis, IBIT call options are trading richer than equivalent puts across maturities spanning 5 to 126 days. This positive call-put skew implies expectations for IBIT to rise over those time frames.
So while surface-level option volumes paint a mixed picture, diving deeper reveals most of the action is likely coming from bulls looking to capitalize on the bitcoin rally in a more conservative, income-generating manner.
With heavyweights like BlackRock making bitcoin accessible to the masses via IBIT, the cryptocurrency’s investability and maturation continues apace – and options markets are wasting no time evolving to meet increasing investor sophistication and strategic diversity.
