Nasdaq (NDAQ.O) has filed an application with the U.S. Securities and Exchange Commission (SEC) seeking approval to trade options on a Bitcoin index. This move is a significant step toward expanding investment opportunities related to the world’s most popular cryptocurrency.
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Nasdaq’s application comes at a time when the SEC has yet to approve options based on any of the exchange-traded funds (ETFs) linked to spot bitcoin prices that were introduced in early 2024. Among them is a Nasdaq application to trade options on BlackRock’s iShares Bitcoin Trust ETF (IBIT.O), a fund valued at $21.3 billion. The options offered by Nasdaq will be derived from the CME CF Bitcoin Real-Time Index, an index developed by CF Benchmarks to track bitcoin futures and options contracts available on the CME Group-operated market (CME.O). These financial instruments will offer institutional investors and traders an alternative to hedge the risk associated with bitcoin, facilitating greater exposure to the cryptocurrency.
The regulatory context
After the approval of spot Bitcoin ETFs in January, several exchanges immediately filed applications for options trading on these new funds. However, in response to the SEC’s comments, many of these applications were withdrawn and later resubmitted. The market is now awaiting the SEC’s decision on whether or not to approve these options. According to Matt Hougan, Chief Investment Officer at Bitwise, the introduction of Bitcoin options is crucial for the full normalization of this asset. ETF options provide a critical component of liquidity, which is necessary for the proper functioning of the market.
What is an option?
An index option is a financial contract that gives the holder the right to buy or sell a market index at a set price by a specific date. There are two main types of index options: call and put. A call option allows you to buy the index at a predetermined price, and is generally used when you expect the index to rise. A put option, on the other hand, allows you to sell the index at a set price, and is used when you expect the index to fall. The key elements of an option include the strike price, which is the price at which you can buy or sell the index, and the expiration date, which is the time by which the option must be exercised. The cost of buying an option is known as the premium, and is paid by the buyer to the option writer. Index options are used both for speculative purposes, to profit from market movements, and for hedging, to protect investments from possible losses caused by market fluctuations.
