Do Bitcoin Options Really Act as a Price Governor?

The Setup: As Bitcoin retreated from the $110,000 level in late 2024, a compelling narrative emerged among market participants: the explosion in Bitcoin options activity has become an invisible hand capping upside potential. The evidence cited was substantial—BlackRock’s spot Bitcoin ETF (IBIT) options open interest surged to $40 billion from just $12 billion by late 2024, with aggregate Bitcoin options contracts reaching $49 billion across all venues in December 2025. Yet this theory deserves closer scrutiny.

The Covered Call Yield Rotation Story

To grasp why this debate matters, consider what prompted the shift in the first place. The traditional cash-and-carry trade—shorting Bitcoin futures while holding spot positions—had been a reliable yield engine through 2024, delivering 10-15% annualized premiums. By November 2025, that premium had deteriorated below 5%, forcing large holders and fund managers to seek alternative income.

Enter covered calls: the strategy of selling upside call options against owned Bitcoin positions in exchange for immediate premium income. These contracts offered a tantalizing 12-18% annualized yield, making them far more attractive than collapsing futures spreads. The capital reallocation was swift and visible in the data—IBIT options open interest exploded as yield-chasing participants entered call-selling positions en masse.

Where the Price Cap Theory Falls Apart

The suppression thesis rests on a seemingly logical chain: yield sellers cap their upside, dealers hedge by selling Bitcoin spot, and a price ceiling emerges. But the actual market structure tells a different story.

The most revealing metric is the put-to-call ratio, which has remained stable below 0.60 throughout this period. This ratio matters because it reflects relative positioning. If call sellers truly dominated the market and artificially constrained prices, we would expect an abundance of call sellers relative to put buyers—pushing this ratio toward zero. Instead, its stability suggests something more nuanced: for every participant monetizing upside through call sales, there exists a meaningful cohort purchasing put protection and positioning for breakouts.

The defensive put-buying is further confirmed by put skew dynamics. IBIT put options shifted from a 2% discount in late 2024 to a 5% premium in recent months—a clear signal that downside protection carries elevated demand. If the market genuinely believed calls were capping Bitcoin indefinitely, put premiums should have compressed instead of expanded.

The Volatility Paradox

Here lies the critical flaw in the cap thesis: implied volatility, the market’s pricing of expected turbulence and price swings, declined to 45% or lower from May onward, compared to 57% in late 2024. Lower volatility directly erodes the premiums that call sellers collect. If the covered call strategy were truly dominant and profitable, we should see robust volatility metrics supporting premium generation. Instead, the opposite occurred—shrinking volatility during a period of expanding options open interest.

This paradox suggests the options market evolved beyond a simple yield play. Yes, some participants engage in call selling for income. But the rising put demand, stable put-to-call ratios, and contracting volatility paint a picture of a market where defensive hedging coexists with yield extraction, where multiple strategies operate simultaneously, and where no single positioning dominates price discovery.

The Real Story

Bitcoin options have not created a price ceiling; rather, they have become the primary venue where the market manages volatility and monetizes it for yield. Call sellers benefit most when Bitcoin appreciates toward their strike prices, aligning their interests with bullish participants rather than opposing them. The evolution from cash-and-carry to options-based yield represents an adaptation to market conditions, not a structural constraint on price discovery.

The persistent demand for put protection, the resilience of the put-to-call ratio, and the collapse in implied volatility collectively suggest that Bitcoin’s price action remains driven by fundamental supply-demand dynamics rather than derivatives positioning. The options market amplifies these dynamics but does not suppress them.

Current Context: Bitcoin recently tested $95.29K levels with notable volatility, yet the options market continues to process hedging and yield strategies across multiple participant types. Until put-to-call ratios collapse or implied volatility spikes persistently, the case for structural price suppression remains unconvincing.