Record IBIT options activity during bitcoin crash—hedge fund blowup or market panic?
Options trading on BlackRock’s spot bitcoin ETF (IBIT) surged to a record 2.33 million contracts and roughly $900 million in premiums on the day IBIT fell 13% to its lowest since October 2024. Puts slightly outpaced calls, signalling heavy demand for downside protection. One popular theory (shared by analyst Parker) asserts the spike stemmed from a leveraged hedge fund (or a few funds) that had concentrated positions in IBIT and long out‑of‑the‑money calls, was hit by margin calls as the ETF dropped, and dumped large ETF positions—contributing to about $10 billion in spot volume and large premium flows. Traders at Monarq echoed reports of systematic selling tied to margin liquidations. Options expert Tony Stewart disputed the single‑fund blowup narrative, noting data suggesting roughly $150 million of the premiums were buybacks of puts (short‑put sellers closing positions) and that the remainder appeared to be many smaller trades and routine panic hedging. Both views agree IBIT options meaningfully impacted market dynamics that day. For traders: watch IBIT options flow and open interest as an emerging liquidity and risk indicator, since ETF‑linked derivatives can amplify spot moves and trigger rapid deleveraging events.
Bearish
The incident highlights a destabilizing feedback loop: large ETF‑linked options volumes and concentrated leverage can amplify spot price moves through forced selling and option position unwinds. The 13% drop in IBIT, record 2.33M option contracts and $900M in premiums indicate significant short‑term risk aversion and rapid deleveraging. If the hedge‑fund blowup theory is correct, concentrated leveraged bets forced large asset sales that intensified the crash—similar to past episodes where derivatives-driven liquidations amplified declines (eg. 2022 crypto liquidations, 2008 cross‑margin deleveraging in equities). Even if no single blowup occurred, massive put buybacks and panic hedging show option flows can rapidly change market liquidity and skew order books. Short‑term implications: elevated volatility, thinner liquidity, increased tail‑risk, and potential for further sharp moves as positions are repriced or closed. Traders should reduce leverage, monitor IBIT option open interest, put/call skew, and large block trades or OTC reports to detect impending forced flows. Long‑term: greater attention on ETF derivatives may push institutional risk management improvements (higher margining, circuit breakers), but also cements IBIT options as a potent market mover—raising structural risk during stressed conditions.