Options activity tied to BlackRock’s spot bitcoin ETF, IBIT, surged to record levels last week as bitcoin plunged, triggering debate over whether forced hedge fund liquidations amplified the market’s downturn.
Since launching, IBIT has attracted billions of dollars from investors seeking bitcoin exposure without directly holding the cryptocurrency. Until recently, institutional positioning has been assessed mainly through ETF inflows, but the latest selloff has pushed options trading into the spotlight.
During Thursday’s decline, IBIT options volume jumped to a record 2.33 million contracts. By Friday, the ETF had fallen 13% to its lowest level since October 2024. Put options slightly outnumbered calls, signaling heightened demand for downside protection—a common feature of stressed markets.
Options allow investors to hedge risk or take leveraged positions with losses capped at the premium paid. Call options provide upside exposure if prices rise above a specified level, while put options protect against declines below a set threshold.
Another standout figure was the roughly $900 million in premiums paid by IBIT options buyers that day, the highest single-day total on record and a sum comparable to the market capitalizations of many mid-tier cryptocurrencies.
Was a hedge fund forced to unwind?
Speculation intensified after market analyst Parker argued in a widely shared post on X that the surge reflected the collapse of one or more hedge funds heavily concentrated in IBIT. According to the theory, the fund had accumulated large out-of-the-money call positions following the October pullback, betting on a rapid rebound.
Those positions were allegedly financed with leverage. As IBIT continued to slide, losses mounted and margin calls were triggered. Unable to post additional collateral, the fund was reportedly forced to liquidate sizable IBIT holdings, contributing to roughly $10 billion in spot trading volume. The fund may also have rolled or closed expiring options, pushing premium payments sharply higher.
Shreyas Chari, director of trading and head of derivatives at Monarq Asset Management, said the price action appeared consistent with margin-driven selling.
“Systematic selling across the majors yesterday was probably tied to margin calls, especially in the ETF with the highest crypto exposure, IBIT,” Chari said, adding that rumors circulated of an options-focused entity selling aggressively as key price levels broke.
Others point to routine market stress
Not all market participants are convinced a single fund failure explains the record activity. Tony Stewart, founder of Pelion Capital, said IBIT options likely exacerbated volatility but described the hedge fund blowup theory as inconclusive.
Citing Amberdata, Stewart noted that roughly $150 million of the $900 million in premiums came from traders buying back put options they had previously sold. As IBIT fell and those puts surged in value, short sellers moved to limit losses—a common response during sharp selloffs.
Stewart said the remaining premium activity appeared to be spread across numerous smaller trades, consistent with a broadly panicked market rather than a single forced liquidation. While he acknowledged that some transactions may have occurred in opaque over-the-counter markets, he said the available data does not point to a clear smoking gun.
Whether driven by forced liquidations or widespread risk-off positioning, the episode highlights the growing influence of ETF options on crypto market volatility and the increasing importance of derivatives data in assessing institutional behavior.
