How to Hedge IBIT and Earn Income With Options Through a Bitcoin Bear Market

As of June 9, Bitcoin is firmly in a bear market. I’m literally watching the price as I write this. It has slipped below $62,000 and is now sitting around $61,790 per coin. That is a long way from the all-time high of roughly $122,000 reached less than a year ago.

Still, some investors have managed to avoid a large portion of the pain. No, they didn’t sell Bitcoin entirely. Instead, they held shares of the iShares Bitcoin Trust ETF (IBIT) and paired them with a fairly sophisticated options strategy known as a collar.

A collar is simply the combination of a protective put and a covered call. The goal is straightforward: limit some downside risk while potentially generating enough income to offset part or all of the hedging cost. Here’s a walkthrough using a hypothetical example based on options data from Yahoo Finance.

Step One: Buy a Protective Put

It’s currently June 9 and IBIT is trading around $35 per share. To keep things simple, we’ll use June 30, 2026 options, giving us 21 days until expiration. Suppose I purchase 100 shares of IBIT at $35. That requires a capital outlay of approximately $3,500.

Now I want some downside protection. I don’t necessarily mind if Bitcoin falls a little further, but I want to place a floor under my potential losses. This is where a put option comes in. Buying a put gives you the right, but not the obligation, to sell 100 shares at a predetermined strike price. Think of it as insurance on your position.

Rather than buying the fully protective $35 strike put, let’s use the $34 strike put. The June 30 $34 put currently shows a bid of $1.12 and an ask of $1.20. Using the midpoint gives us an estimated premium of $1.16 per share. Since options represent 100 shares, the total cost comes to approximately $116.

In exchange for that $116, I now have the right to sell my 100 shares at $34 until expiration. That dramatically reduces my downside risk. If IBIT collapses, I can still exit at $34. The catch is that this protection is not free. I’ve already spent $116, and that option will gradually lose value as expiration approaches. Eventually, if unused, it expires worthless.

Step Two: Sell a Covered Call to Fund the Hedge

There is no free lunch in options. If you want downside protection, you either pay for it directly or sacrifice some upside potential to finance it. That’s where the covered call comes in. Since we already own 100 shares of IBIT, we can sell a call option against those shares.

Looking at the June 30 at-the-money $35 strike call, we’re seeing a bid of $1.57 and an ask of $1.62. Using the midpoint gives us a premium of approximately $1.595 per share. Multiply that by 100 shares and the total premium collected comes to roughly $159.50.

Now the math gets interesting. We paid $116 for the protective put. We collected approximately $159.50 from selling the covered call. That leaves us with a net credit of roughly $43.50 while still maintaining downside protection through the put.

The tradeoff is obvious. If Bitcoin suddenly rebounds and IBIT rallies sharply above the call strike, your upside becomes capped because the call buyer now has the right to purchase your shares. You have essentially exchanged all upside participation for some downside protection and a small amount of income. That is the essence of a collar.

There is no single correct way to build one. You can choose lower put strikes to reduce the cost of protection. You can sell farther out-of-the-money calls to preserve more upside. You can use different expirations for the put and call. You can even structure the trade to generate no income at all while maximizing protection.

The combinations are nearly endless. The important thing is understanding the tradeoff. Every additional dollar of protection usually costs upside potential somewhere else. Fortunately, there are plenty of options calculators available online that allow investors to model these outcomes before committing real capital.