SEC approves options trading on spot Ethereum ETFs

The Securities and Exchange Commission (SEC) has approved options trading for spot Ethereum ETFs. This means that investors interested in options trading can now secure options contracts on Ethereum ETFs. 

Following months of delays and heavy scrutiny, the US Securities and Exchange Commission (SEC) has officially approved options trading on the iShares Ethereum Trust (ETHA), a spot Ethereum ETF.

The approval is a win for companies like BlackRock and Nasdaq ISE, who have been vocal about the need for more crypto-based products despite the regulatory hurdles.

US SEC approves options trading

The US Securities and Exchange Commission (SEC) has officially approved a rule change that allows investors to trade options on the iShares Ethereum Trust (ETHA).

In November 2024, the SEC postponed its decision on approving options trading for Ethereum ETFs, stating that it needed additional time to assess the market implications.

Prior to this, in August 2024, Nasdaq filed a proposal to list options on BlackRock’s iShares Ethereum Trust (ETHA), as there was a growing interest in expanding Ethereum-based financial products.

The approval of options trading is expected to grow the liquidity and appeal of spot Ethereum ETFs. Options are contracts that allow investors to speculate on price movements and manage risk more effectively. Investors can bet on asset prices without actually owning the asset itself.

Bloomberg’s senior ETF analyst Eric Balchunas noted that the introduction of options attracts more liquidity and “big fish” investors to the market.

How the trading options could work

The options will trade on Nasdaq ISE, just like options on other stocks or ETFs. The options will be physically settled, which means if the contract is exercised, actual shares of the ETHA fund will be delivered. The options also follow the same rules as other ETF options.

To manage safety and stability concerns, the SEC has capped the number of contracts investors can hold to 25,000 contracts on the same side of the market. This prevents investors from going all in on buying or selling to maintain stability.

The SEC also pointed out that the 25,000 contract limit is cautious as other ETFs with similar trading volume often get 50,000 to 75,000 contract limits.

ETHA had an average daily trading volume of over 5.3M shares between July and December of 2024 and had 93,352 shareholders by the end of the same year.

The trust had 57.4M shares outstanding and a market value of about $1.16B but when compared to the full $315B value of the Ethereum market, the impact of ETHA options can be considered minimal.

However, some analysts are warning that trading options is risky, especially when paired with a volatile asset like Ethereum.

The SEC responded by reminding brokerages and exchanges that strict rules already exist to protect retail traders.For example, brokers have to make sure their clients understand the risks before letting them trade options.

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