On November 19, the iShares Bitcoin Trust ETF (IBIT) launched its market to a surprise trading volume of $1.9 billion. Analysts hailed the launch as a success, but is this optimism justified? A closer look at IBIT’s options reveals an overwhelming bullish sentiment, with some contracts implying a staggering price projection of $170,000 for Bitcoin.
Understanding IBIT Options
Options are financial instruments that allow traders to bet on price movements or hedge risks without buying the underlying asset directly. Among IBIT options, there were 288,740 call (buy) options traded compared to only 64,970 put (sell) instruments, resulting in a staggering 4.4:1 ratio.
At first glance, this seems to indicate an overwhelming bullish sentiment among traders. However, these trades are more complex than they appear.
The $100 Call Option: A Low-Probability Trade
One of the most surprising trades was the $100 call option expiring on December 20, which saw a massive 9,500 contracts traded at just $0.15 each. This pricing indicates a low probability of Bitcoin hitting the implied price of $175,824.
Low-Cost Options as Lottery Tickets
These low-cost options are often used by investors as "lottery tickets." While they can be eye-catching and provide outsized potential gains, these contracts often distort the perception of market sentiment.
For example, consider the $65 IBIT call option expiring on January 17, priced at $2.40 per contract (4.5% of IBIT’s price). This trade becomes profitable if Bitcoin reaches approximately $114,286 by expiry, reflecting a 22% rise in two months.
Sophisticated Trading Strategies
Some investors use more complex strategies to profit from IBIT options. For instance, a synthetic long involves selling a put and buying a call for the same price, effectively replicating Bitcoin ownership without holding the asset.
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Example: Selling a $50 put and buying a $60 call for $2.15, replicates Bitcoin ownership.
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Covered Call Strategy:
Investors can sell call options to generate immediate income while limiting their upside potential. For example, selling a $55 call option expiring in January for $5.20 allows an investor to collect the premium upfront but agrees to cap their profit if IBIT exceeds $55.
If IBIT closes at $45 or $50, the call expires worthless, and the investor keeps the $5.20 premium, reducing their loss or adding to their return.
Bull Call Spread Strategy
This strategy targets moderate price increases while limiting risk. A trader can buy a $53 call for $6.20 and sell a $58 call for $4.10, netting a $2.10 cost. If IBIT closes at $58, the spread’s $5 value results in a $2.90 gain ($5 – $2.10 cost).
Is Bitcoin’s Price Going to $170,000?
The $170,000 price projection is not a market consensus but an outlier created by low-cost, high-reward trades. IBIT options have been flooded with speculative bets, particularly on February and May 2025 contracts, which show a 6.7:1 call-to-put ratio.
However, the odds of such extreme outcomes are minimal. Options offer leverage, allowing smaller investments for outsized potential gains. Yet, they can expire worthless if the asset price doesn’t move as expected.
Conclusion
IBIT options provide new ways to profit from Bitcoin, but understanding the mechanics and probabilities is key. Retail investors should be aware that these low-cost options can distort market sentiment and often come with minimal probability of success.
As with any investment, it’s essential to do your own research and consult with a financial advisor before making any decisions. This article is for general information purposes only and should not be taken as legal or investment advice.
