Nasdaq and BlackRock, the world’s largest asset manager, are planning to start trading options on the spot Ethereum ETF.

How Does Spot Ethereum ETF Options Trading Work?

Options are contracts that allow the buyer to purchase or sell the underlying asset at a specified time and price. Retail investors use options for speculation and short-term transactions because of their high potential return, and the possible loss is limited to the amount of the option premium. Options allow investors to profit from both rising and falling asset prices.

BlackRock’s options offering will provide investors with an additional and relatively inexpensive investment vehicle for purchasing ETH on the spot and a hedging tool to meet their investment needs. This new product will offer a cost-effective way for investors to engage with digital assets, making it highly likely that options will be in demand.

Ethereum Spot ETFs Receive Approval

Since January, when a spot Bitcoin ETF was approved, many financial institutions, including BlackRock and Fidelity, have sought approval to create cryptocurrency exchange-traded funds. Their goal is to allow investors to trade Ethereum in the form of fund shares without directly dealing with the cryptocurrency.

On May 23, the SEC approved the launch of a spot Ethereum ETF in the U.S. Companies like BlackRock, 21Shares, Bitwise, Fidelity Investments, Franklin Templeton, VanEck, and Invesco Galaxy received the regulator’s approval. The ETH-ETF products began trading on July 23, and within the first 15 minutes, the sector saw $112 million in trading volume.

Amid the crypto market collapse on Aug. 6, total inflows into ETH ETFs amounted to $98.3 million — the second result since the products were approved.

BlackRock Options Strategies

In the spring, BlackRock introduced two new ETFs that use options strategies. These funds employ a covered call strategy on U.S. stocks.

  • The iShares S&P 500 BuyWrite ETF (IVVW) focuses on large-cap stocks. It tracks the performance of an index that reflects a strategy of owning 500 large-cap U.S. stocks while writing (selling) one-month call options for income.
  • The iShares Russell 2000 BuyWrite ETF (IWMW) is a small-cap ETF. It tracks the performance of an index that reflects a strategy of owning 2,000 small-cap U.S. stocks while writing (selling) one-month call options for income.

With these new products, investors receive monthly income from the option premiums earned under their strategies and potential price appreciation on the stocks they track, up to a specific limit.

Should BlackRock Approve the New Product?

BlackRock has a strong track record with ETFs and manages more than $9 trillion in assets. The company’s desire to launch a new crypto-based tool is likely to succeed, attracting clients and their capital to the industry.

For more updates on cryptocurrencies, investing, and finance, keep exploring news on Global Crypto News.

Post Views: 2