BlackRock IBIT options desk shifts Bitcoin hedging dynamics

MIAX rule changes for IBIT

The May 2026 increase of the IBIT position and exercise limit to 1 million contracts changed the liquidity for Bitcoin ETF options. MIAX Pearl filed a rule change on August 13, 2026, to create two tiers for qualifying ETFs. Tier 1 requires more than $50 billion in AUM and more than 10 million monthly options sides, providing Tuesday and Thursday short-term expiries. Tier 2 requires more than $25 billion in AUM and more than 5 million monthly sides, which limits expiries to Monday and Wednesday. Although the SEC waived the standard 30-day delay to make the rule operative upon filing, the agency retained the authority to temporarily suspend the rule within a 60-day window after the filing date. Both tiers require a position limit of at least 250,000 contracts and participation in the Penny Interval Program. IBIT net assets were $43.23 billion on June 30, placing it in the Tier 2 category. This tier allows no more than two Monday and two Wednesday expirations beyond the current week at one time. The contracts use P.M. settlement and do not expire on dates that coincide with standard monthly or quarterly expirations. The Federal Register notice sets a September 17, 2026, comment deadline for the change. Traders tracking IBIT expirations now see additional Monday and Wednesday short-term expiration dates. This expansion does not create IBIT expiries on every business day.

Hedging and institutional positioning

JPMorgan analysts led by Nikolaos Panigirtzoglou suggest the Bitcoin price could gain support if investors unwind IBIT hedges while keeping their underlying exposure. IBIT carries near-record short interest and a higher put-to-call open interest ratio than GLD. This differs from gold, as gold ETFs recovered all outflows from earlier in 2026 while Bitcoin ETFs recovered only half. Between July 31 and September 4, Bitcoin ETFs saw net inflows of about $4.23 billion. However, momentum reversed with $462.73 million in net outflows for the week ending September 11 and $586.27 million in withdrawals the week of September 16. While the October 7 outflows reached a massive $484.9 million, the October 12 redemption of $65.4 million from IBIT was only a third of the previous week’s intense selling pressure. Robert Mitchnick, the Global Head of Digital Assets at BlackRock, dismissed claims that a hedge fund collapse triggered the Bitcoin price drop. He noted that total redemptions from IBIT amounted to only 0.2% during a period of volatility. He contrasted this with the billions of dollars in liquidations on leveraged perpetual futures platforms. Bitcoin prices traded in the low-to-mid $80,000s during this period. The October 12 outflow of $65.4 million from IBIT was the total net outflow for the entire US spot Bitcoin ETF market that day. IBIT is in the top 15 of all ETFs by assets and the top 2% by daily trading volume. IBIT’s historical cumulative net inflows stand at $65.67 billion.

BITO vs IBIT exposure

The structural difference between IBIT and the ProShares Bitcoin Strategy ETF (BITO) dictates how traders manage exposure. BITO uses CME Bitcoin futures contracts instead of holding Bitcoin, so it faces monthly rolling costs. When longer-dated contracts cost more than near-term ones, a condition called contango, the rolling process creates a drag on returns. IBIT holders avoid this rolling cost because the fund holds actual Bitcoin. BITO carries a 0.95% annual expense ratio to manage its rolling futures portfolio. The ProShares lineup includes BITO, BITU, BITI, and SBIT. BITO targets standard Bitcoin price exposure, while BITU targets 2x the daily performance of Bitcoin through futures and swaps. BITO launched on October 18, 2021, while BITU launched on April 2, 2024. The two funds move in lockstep with a correlation of 1.00. BITO returned -30.81% over the last year, while BITU returned -63.81% over the same period. BITO has an AUM of $1.7 billion, whereas BITU has $591 million.

BITU has an annualized monthly volatility of 93.8% compared with 45.9% for BITO. The deepest peak-to-trough decline in the data shows BITO at -54.5% and BITU at -83.5%. I find the BITO expense ratio of 0.95% to be an unnecessary burden compared to the direct exposure of IBIT.

Volatility management and outflows

Traders use options to manage the volatility that IBIT faces. A put ratio spread allows for profit during slightly negative Bitcoin price action. A trader buys one put option at a higher strike price and sells two put options at a lower strike price with the same expiration date. For example, on IBIT, a trader could buy the Sept. 19 put with a strike price of 65 for $2 and sell two Sept. 19 60-strike puts for 80 cents each. This trade results in a net debit of 40 cents per share, or $40 total. The maximum loss remains $40 if the price stays above 65. The break-even point is 55.40 at expiration, and losses occur if the price ends below that. You should remember that IBIT’s Relative Strength Rating sits at 91. IBIT holds 28,622 bitcoins with a market value of $1.199 billion as of Jan 18. On October 12, IBIT’s $65.4 million outflow was only about a tenth of a percent of its $65.67 billion cumulative net inflows. The October 12 redemptions were decisions made specifically by IBIT holders rather than a broad rush for the exits. Does the increasing complexity of these options tiers mean the market will see even more fragmented liquidity?