Higher Bitcoin ETF Options Limits May Cut Volatility, but Boost Spot Demand: NYDIG
Main Idea
Higher Bitcoin ETF options limits may reduce volatility and increase spot demand, as approved in-kind redemptions and covered call strategies could stabilize prices and drive sustained demand.
Key Points
1. The SEC approved in-kind redemptions for spot bitcoin ETFs, allowing traders to hold ten times more contracts than before.
2. Covered call strategies, which earn yield by selling upside exposure, work best at scale and could help smooth price swings.
3. Bitcoin's volatility has been declining, with Deribit’s BTC Volatility Index (DVOL) dropping from around 90 to 38.
4. Increased ETF options limits could drive sustained demand for Bitcoin by encouraging balanced risk exposure in portfolios.
Description
Bitcoin’s trademark volatility may be entering a new phase thanks to the Securities and Exchange Commission (SEC). The agency's decision to raise position limits on options for most bitcoin ETFs could help smooth price swings by encouraging strategies like covered call selling, which caps the upside in exchange for steady income, according to NYDIG Research. That increase in position limits for options trading on IBIT came as the regulator approved in-kind redemptions for spot bitcoin ETFs. By l...
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