BlackRock seeks to launch options on Ethereum ETFs. What does this mean for the market?

Nasdaq and BlackRock, two of the world’s largest asset management companies, plan to launch spot options trading on the Ethereum ETF.

According to a filing on the U.S. Securities and Exchange Commission’s website, representatives from Nasdaq and BlackRock have asked the regulator to allow options trading on the iShares Ethereum Trust ETF (ETHA), the only Ethereum-based ETF listed on the Nasdaq exchange.

The published document proposes to change the options listing and trading rules on the iShares Ethereum Trust. The exchange proposes to expand the list of ETFs eligible for exchange-trading by including the Trust in options.

The Trust’s ETH is subject to Ethereum proof-of-stake verification or used to earn additional ETH or generate income or other benefits.

Comments on the Nasdaq and BlackRock proposal are being accepted within 21 business days. Meanwhile, Bloomberg Intelligence analyst James Seyffart believes that a final decision on this application will not be made before April 2025.

Nasdaq and BlackRock’s application to add options to their Ethereum ETFs has reached the SEC website. The SEC’s final decision on the matter will likely be around April 9, 2025.

(SEC is not the sole decision maker here on adding options. It also requires approval from OCC and CFTC) https://t.co/K4HunUPp7S pic.twitter.com/5kQH0mljTz

— James Seyffart (@JSeyff) August 6, 2024

The expert explained that BlackRock needed to receive approval from the SEC, the Commodity Futures Trading Commission, and the Options Clearing Corporation to be able to trade options on the spot Ethereum (ETH) ETF.

At the same time, Nasdaq is still awaiting approval for options trading on spot Bitcoin (BTC) ETFs. In July, the SEC said it needed more time to decide on that product class.

How does spot Ethereum ETF options trading work?

Options are contracts that give the option buyer the opportunity to buy or sell an underlying asset at a specific time and price.

Individual investors use options for speculation and short-term trading because options have high potential returns and limited potential losses: when you buy an option, you cannot lose more than the option premium. At the same time, options allow them to earn money on the growth and decline of assets.

BlackRock’s options offering will provide investors with an additional and relatively inexpensive investment vehicle to instantly purchase ETH and a hedging instrument to meet their investment needs.

In other words, the new product will offer another way for those looking to interact with digital assets. Since the cost of interacting with them is relatively low, there will definitely be demand for the options.

Ethereum spot ETFs get approval

Since the approval of a spot Bitcoin ETF in January, several financial institutions, including financial giants BlackRock and Fidelity, have been trying to gain approval to create cryptocurrency exchange-traded funds. Their aim was to allow investors to trade Ethereum in the form of fund shares without having to deal with the cryptocurrency directly.

The SEC approved the launch of a spot Ethereum ETF in the US on May 23. BlackRock, 21Shares, Bitwise, Fidelity Investments, Franklin Templeton, VanEck, and Invesco Galaxy received the regulator’s approval.

ETH-ETF products started trading on July 23. The sector saw a trading volume of $112 million in the first 15 minutes.

Here is the first 15 minutes of volume. $112 million total traded for the group (that’s a TON compared to a normal ETF launch but only half the volume pace of bitcoin ETFs on DAY ONE, but I think 50% will beat expectations). Bitwise is also performing better early. pic.twitter.com/RoN9J1VoP1

— Eric Balchunas (@EricBalchunas) July 23, 2024

According to SoSoValue, total inflows into ETH ETFs reached $98.3 million following the cryptocurrency market crash on August 6. This is the second such result since the products were approved.

Source: SoSoValue BlackRock options strategies

BlackRock introduced two new ETFs that use options strategies in the spring. The new funds use a covered call strategy on U.S. stocks.

First, the iShares S&P 500 BuyWrite ETF (IVVW) focuses on large-cap stocks. The fund tracks the performance of an index reflecting its strategy of owning 500 large-cap U.S. stocks while writing (selling) one-month call options for income.

Second, the iShares Russell 2000 BuyWrite ETF (IWMW) is a small-cap ETF. The fund tracks the performance of an index reflecting a strategy of owning 2,000 small-cap U.S. stocks while writing (selling) one-month call options for income.

With the launch of new products, investors began to earn monthly income, up to a certain limit, from the option premiums they earned within the scope of their strategies and the potential price increases in the stocks they followed.

Should BlackRock approve the new product?

BlackRock has little to no history of rejecting ETFs, and the giant manages more than $9 trillion in assets, so the company’s bid to launch a new crypto-based vehicle is likely to be successful, potentially attracting clients and their capital to the sector.