Options Trading on Spot Bitcoin ETFs Closer to Reality

Options trading on spot bitcoin exchange-traded funds (ETFs) is progressing positively after a recent advisory from the Commodity Futures Trading Commission (CFTC).

CFTC Advisory

Late Friday, the CFTC’s Division of Clearing and Risk (DCR) stated that ETF options on spot commodity funds are "cleared and settled by the Options Clearing Corporation (OCC), the sole issuer of all equity options."

The advisory mentioned that, based on relevant court precedents, there is a strong likelihood that these spot commodity ETF shares will be classified as securities. Therefore, the DCR concluded that listing these shares on SEC-registered national securities exchanges does not fall under CFTC jurisdiction. The clearing of these options by the OCC will occur under its capacity as a registered clearing agency, subject to SEC oversight.

Progress on Bitcoin ETFs

This marks the second key hurdle for Bitcoin ETFs, especially following the Securities and Exchange Commission's (SEC) approval of 11 spot BTC ETFs in January. Bloomberg's senior ETF analyst, Eric Balchunas, noted that the "ball is now in OCC's court" and predicted that the listing would occur soon.

The process began on September 20 when the SEC approved BlackRock's proposal to list and trade options for its IBIT fund.

Commentary on the Delay

Nate Geraci, President of ETF Store, expressed frustration regarding what he termed unnecessary delays and remarked on the potential for options trading on spot Ethereum ETFs as well.

Market Insights

Retail traders often utilize options for speculative purposes, whereas larger institutions may employ them as a hedge. Given Bitcoin's substantial retail following, increased speculation in bitcoin ETF options is anticipated compared to traditional equity options. Market structure analyst Dennis Dick stated that contrary to popular belief, options can actually lower volatility by creating natural buyers and sellers as open interest rises, enhancing market liquidity.