Smart Investor - Long-term strategies for trading IBIT options: calls and puts

Why January 2026 Expiry?

For long-term investors, choosing a far-dated expiration provides several benefits:

1. Time Horizon for Big Moves: Given Bitcoin’s historically volatile nature, longer expirations allow investors to position themselves for significant price changes (bullish or bearish) without being rushed by time decay (theta).
2. Reduced Impact of Time Decay: Options lose value as they approach expiration, but with more than a year until January 2026, the impact of time decay is minimized, especially compared to shorter-dated options.
3. Scenario Alignment: With predictions ranging from Bitcoin hitting $45,000 to $180,000 by 2025, the January 2026 options allow us to incorporate these scenarios into our strategies while maintaining ample time for the market to play out.

Why These Strikes?

In the screenshot, specific strikes have been highlighted for both call and put options. Here’s why these strikes were chosen:

1. Open Interest:
   • The highlighted strikes (e.g., $50 and $70) show significantopen interest, indicating these are some of the most actively traded contracts.
   • High open interest ensures better liquidity, which allows traders to easily enter or exit positions without facing wide bid-ask spreads or slippage.
     
2. At-the-Money or Key Levels:
   • The $50 and $70 strikes are either close to the current price of IBIT ($55.27) or represent round numbers that often act as psychological support or resistance levels.
   •  These strikes provide flexibility for both bullish and bearish scenarios, aligning with Bitcoin’s potential movements based on analyst predictions.

3. Premiums and Risk/Reward:
   •  The selected strikes strike a balance between affordable premiums and meaningful profit potential, ensuring the strategies are practical for both retail and professional investors.

Important Disclaimer: Educational Purposes Only

Before we proceed with the strategies, it’s important to emphasize that all the examples in this article are for educational purposes only. The prices, premiums, and scenarios used in these examples are based on market data from a few days ago, captured at the time of writing.

Given the volatile nature of Bitcoin, both the price of the underlying asset and the associated IBIT options premiums may have already changed significantly. Bitcoin's rapid price movements directly impact IBIT, and readers should verify current market prices before considering any of the concepts discussed.

Options trading involves risk, and past performance is not indicative of future results.

Strategy 1: Buying a Long Call on IBIT

A long call is a straightforward and widely used strategy for investors who are bullish on the underlying asset—in this case, IBIT. By purchasing a call option, you gain leveraged exposure to IBIT’s price movements with limited downside risk.

Below is the payoff profile for a long call option on IBIT with a $50 strike price, expiring in January 2026:

Trade Setup

• Option Type: Call
• Strike Price: $50
• Premium Paid (Net Debit): $17.99 per share, or $1,798.75 per contract (100 shares per contract)
• Expiration Date: January 16, 2026
• Underlying Price (IBIT): $55.27 at the time of analysis

Key Metrics

• Maximum Loss:
  • The most you can lose is the premium paid, which is $1,798.75 per contract.
  • This occurs if IBIT is trading at or below $50 at expiration.
• Maximum Profit:
  • The profit potential is unlimited as there is no cap on how high IBIT’s price can rise.
• Break-Even Price:
  • The trade becomes profitable if IBIT trades above $67.99 at expiration.
  • Break-Even Calculation: Strike Price ($50) + Premium Paid ($17.99).
  • Bitcoin Price Correspondence: An IBIT price of $67.99 corresponds approximately to a Bitcoin price of $122,382 (using the 1/1,800th correlation).
• Chance of Profit:
  • Based on current implied volatility (69%), the estimated probability of IBIT exceeding the break-even price by expiration is 38%.
• What Bitcoin Price Corresponds to a $50 IBIT Price?
  • If IBIT is trading at $50, the corresponding Bitcoin price would be approximately $90,000.

Scenario Analysis

• Bullish Scenario:
  • If Bitcoin rises to $180,000 by 2025, IBIT would trade at approximately $100 at expiration.
  • Intrinsic Value: $100 - $50 = $50 per share.
  • Total Value: $50 × 100 shares = $5,000 per contract.
  • Net Profit: $5,000 - $1,798.75 = $3,201.25 per contract.
  • Return on Investment (ROI): 178%.
• Neutral Scenario:
  • If IBIT remains at its current price of $55.27, the option’s intrinsic value would be $5.27, resulting in a net loss of $12.72 per share, or $1,272 per contract.

• Bearish Scenario:
  • If Bitcoin falls to approximately $90,000, IBIT would trade at or below $50.
    • The option would expire worthless, resulting in the maximum loss of $1,798.75 per contract.

Why and When to Use This Strategy

The long call strategy is ideal for investors who are confident in Bitcoin's long-term price growth and expect IBIT to rise significantly. It offers leveraged exposure to Bitcoin's price movements via IBIT without the need to own the underlying ETF directly.

Advantages:

• Limited Risk: Losses are capped at the premium paid, no matter how low IBIT’s price falls.
• Significant Upside: The profit potential is unlimited if Bitcoin surges, aligning with bullish price predictions.
• Leverage: Allows for amplified gains relative to the initial investment, offering significant upside with minimal capital outlay.

This strategy suits investors who are comfortable with the possibility of losing the premium paid if Bitcoin and IBIT fail to rise as anticipated. It is particularly useful for those seeking a way to limit downside risk while maintaining exposure to potential upside in Bitcoin's price trajectory.

Strategy 2: Buying a Long Put on IBIT

A long put is a popular strategy for investors who are bearish on the underlying asset—in this case, IBIT. By purchasing a put option, you gain downside exposure to IBIT’s price movements with limited risk, as your maximum loss is capped at the premium paid. Long puts are also an excellent tool for hedging existing long positions in IBIT or Bitcoin.

Trade Setup

• Option Type: Put
• Strike Price: $70
• Premium Paid (Net Debit): $22.81 per share, or $2,281.25 per contract (100 shares per contract)
• Expiration Date: January 16, 2026
• Underlying Price (IBIT): $55.33 at the time of analysis

Key Metrics

• Maximum Loss:
  • The most you can lose is the premium paid, which is $2,281.25 per contract.
  • This occurs if IBIT is trading at or above $70 at expiration.
• Maximum Profit:
  • The maximum profit is realized if IBIT falls to $0, calculated as:
    (Strike Price - Premium Paid) × 100 = ($70 - $22.81) × 100 = $4,718.75 per contract.
• Break-Even Price:
  • The trade becomes profitable if IBIT trades below $47.19 at expiration.
  • Break-Even Calculation: Strike Price ($70) - Premium Paid ($22.81).
  • Bitcoin Price Correspondence: An IBIT price of $47.19 corresponds approximately to a Bitcoin price of $84,942 (using the 1/1,800th correlation).
• Chance of Profit:
  • Based on current implied volatility (68%), the estimated probability of IBIT falling below the break-even price by expiration is 41%.

Scenario Analysis

• Bearish Scenario:
  •  If Bitcoin falls to $45,000 by 2025, IBIT would trade at approximately $25 at expiration.
    • Intrinsic Value: $70 - $25 = $45 per share.
    • Total Value: $45 × 100 shares = $4,500 per contract.
    • Net Profit: $4,500 - $2,281.25 = $2,218.75 per contract.
    • Return on Investment (ROI): 97%.
• Neutral Scenario:
  •  If IBIT remains at its current price of $55.33, the option’s intrinsic value would be $14.67 ($70 - $55.33), resulting in a net loss of $8.14 per share, or $814 per contract.
• Bullish Scenario:
  • If Bitcoin rises significantly (e.g., to $180,000) and IBIT trades at or above $70, the put option would expire worthless, resulting in the maximum loss of $2,281.25 per contract, which is the premium paid.

Why and When to Use This Strategy

The long put strategy is ideal for investors who are bearish on Bitcoin or those looking to hedge existing positions in IBIT or Bitcoin. It offers leveraged downside exposure to Bitcoin's price movements via IBIT with capped risk.

Advantages:

• Downside Leverage: Profit from significant declines in Bitcoin’s price without directly shorting the ETF.
• Risk Management: Provides a cost-effective way to hedge against declines in existing Bitcoin or IBIT holdings.
• Limited Risk: Losses are capped at the premium paid, regardless of how high IBIT’s price rises.

This strategy is particularly useful for investors expecting significant bearish moves or those looking to offset potential losses in their existing Bitcoin-related positions. It is suitable for those comfortable with the possibility of losing the premium if IBIT fails to decline as anticipated.

Conclusion

Options trading on IBIT provides a unique and flexible way to gain exposure to Bitcoin's price movements within a regulated market environment. Through strategies such as buying long calls and long puts, investors can express both bullish and bearish views on Bitcoin while managing their risk with predefined loss limits.

The long call strategy is ideal for investors who are confident in Bitcoin's long-term growth and want to capitalize on significant price increases. It offers unlimited profit potential with a fixed downside risk, making it a powerful tool for those who anticipate substantial upward movement in IBIT’s price.

Conversely, the long put strategy provides an effective way for bearish investors to profit from Bitcoin's price declines or hedge existing positions. By capping the maximum risk at the premium paid, long puts allow for leveraged downside exposure while maintaining control over potential losses.

Both strategies illustrate the versatility of IBIT options for navigating Bitcoin's volatility. Whether you are optimistic about new all-time highs or preparing for a market correction, options allow you to tailor your trades to specific price forecasts and risk tolerance levels.

It’s important to remember that options trading involves risks, and the scenarios presented in this article are for educational purposes only. Investors should carefully assess their financial situation, market outlook, and risk appetite before implementing these strategies. As always, staying informed and monitoring market conditions is key to making the most of these powerful tools.