Thanks for this great video. Is there a tool/website which identifies up-to-the-minute the coin with the best price difference between spot and future price? It is very annoying to calculate this for every coin to find the best investment....
this would also work by shorting the perpetual swap instead of a futures contract and work similar as long as the funding rate is positive or am I missing something?
Correct, this works on the perpetual as well. You can think of shorting the perpetual as the variable rate version, and the C&C described in the video using the dated futures as the fixed rate version. You know what premium you are capturing on the dated futures before you place the trade, whereas with the perpetuals you don't know what the future funding rates will be in future. The perpetual version can result in a larger profit though, and certainly has for the last few months as I mentioned recently on twitter here: twitter.com/cryptarbitrage/status/1374763149639974915
Can you not ramp up the leverage (with minimal collateral) , all on Deribit, by buying the Perpetual Future and selling the future Future, say December, etc? In this way, you shouldn't be at risk for a margin call, correct? Given that Deribet permits 100x leverage... Or am I missing something? For example: With 1 BTC collateral, could I buy 10 BTC of the Perpetual Long and sell 10 BTC of the Dec 2021? Could I buy and sell 100 BTC worth of each?
This is a very common question, but the short answer is that while you can execute that trade, it will almost certainly make a loss. It is technically possible to do at leverage of course, but longing the perpetual is not free due to the funding mechanism used to keep the perpetual tracking the index. Funding tends to on average be paid by longs to shorts, and the amount is also often larger than the premium on the dated futures. This results in the leveraged version making a loss. A profitable way to leverage this trade up would be find some way of borrowing USD at a lower rate than you can capture on the dated future, then execute as described in the video. I made a post giving the funding rate totals by month for the last couple of years here: twitter.com/cryptarbitrage/status/1374763149639974915 You could argue that doing the reverse at leverage would be a better trade, certainly recently at least. (I haven't actually backtested the full 2 years)
@@Cryptarbitrage Seems to be a big difference between CME's futures prices and Deribit's, any idea why? Any advantage in arbitraging between the two? Haven't done the math yet, but since you can buy the CME futures with some leverage vs buying BTC, might be able to get some additional leverage that way...
@@maciejzielinski1274 You will have different market participants at each due to locations and regulations (Deribit is not available to Americans for example), but also the CME contracts are dollar margined, whereas the Deribit contracts are coin margined (i.e. your account balance/margin is BTC). Certainly possible though for those with access to both and the ability to manage risk appropriately.
Thanks for the explanation. From the video I understand that it is necessary to transfer spot BTC from an exchange to Deribit. How much of an impact does the time it takes to transfer BTC to the Deribit wallet have in terms of returns? Is it negligible if transfer is done right away? What if I transfer my BTC to Deribit and keep shorting the futures as they expire i.e. on a rolling basis? I would still be able to pocket the difference between the spot and the futures right? Thanks
Other question: would you recommend to buy different futures expirations (I.e. may, june, aug,..) or buy just one far in the future (I.e. mar 2022)? Thanks!
Thanks for the useful information. I have a question, example binance quarterly 0625 64000 and spot is 60000. Does It means if I can wait 3 months this is opportunity to make 4000 per btc? Hope to seek some advice from u
Assuming their futures use BTC as collateral like the Deribit ones, then yes that would work exactly the same as described in the video. You would buy 1 BTC for $60k, then use that 1 BTC as collateral to short the June future with a position size of $64,000. After 3 months you'll have $64,000 worth of BTC (which you can then sell back into USD if you wish).
@@Cryptarbitrage perfect.. I will check this out and soon might take up your delta neutral course to hAve a better understanding of the trade.. thanks and have a great weekend ahead
Right now, the June futures is 10% higher than current spot price. That could amount to 40% per year if you're in a bull market (10% quarterly) What kind of premiums, if any, are more in line with bear markets? Could i expect 20% per year (5% per quarter)?
They are dollar denominated in this video. So in order to realise your profit it must be in dollars. You could very easily use assets you are long anyway as collateral for the short. As long as the futures market is in contango when you short the contract you have locked in that profit. You could either wait for the contract to be settled on its date if you don't need the cash or you could keep an eye on the difference in price and close the position early when the difference is low by buying back your short contracts for less money.
Well technically you don't have to (I usually don't), but that's one way of locking the profits back into dollars. You can roll to the next contract instead though for example (mentioned in the video), or just stay long whatever amount of bitcoin you end up with if you prefer. However a basic cash and carry trade like the one described in the video is one that starts off with your funds in dollars (or stable coins) and ends with your funds in the same currency, but a larger amount of course. You are not trading the direction of bitcoin here, and are only buying it to take advantage of the difference between the current bitcoin price, and the bitcoin futures contract price. You are both long and short bitcoin at the same time, just using different ways of doing so. You're long by holding spot, and short the futures. The difference between the two is what you are capturing.
@@Cryptarbitrage On binance, they have USD(stablecoin) futures and coin futures. So once i purchase the spot BTC, I'll transfer a portion of it as collateral to Binance, and then I would short on the coin futures (BTCUSD quarterly) contract denominated in BTC?
@@Cryptarbitrage Thanks for the reply. I havent tried it before so yea Id like to make sure about the details. Two last questions if i may: So let's say we are at the end of the contract. Can i just let it expire (do nothing) or is there any advantage to actively closing the position instead of letting it expire? And second, before I roll the contract to the next futures: if i made $1000 profit on the short position, i would assume I have to withdraw $500 and add it to the spot BTC side in order to equalize the next cash and carry trade? Just like, if i made $1000 profit on the spot side of the trade, i would have to take $500 of the spot BTC profit and send it to Binance to make up for the collateral loss, before I could roll it to the next futures contract? In other words, whichever side wins the trade, Id have to send half of that win to the other side in order to re-balance the spot and short for the next trade...
If you close the futures side before expiration because the spread has dropped to zero or close to zero you immediately need to sell your long bitcoin or roll into the next futures ctc to avoid being directionally exposed. If spreads have dropped giving a good opportunity to get out of the futures side, it may not be the best time to roll to the next futures ctc as spreads are small right then, you therefore would have to sell your long bitcoin and incur commissions on that sale. Then start all over again on both legs of the trade. Might be hard to hold the long bitcoin side of the trade through rolls on the futures side, may not be good time for the roll.
Indeed, if the premium goes to zero way before expiry, it's usually due to a price crash which is also happening in the other futures. Rolling in this circumstance is not going to capture much extra. So you can either: - Put up with a poor rate for the roll. - Just not close and wait until expiry anyway, hoping some premium returns to the other contracts by then. - Park the short on the perpetual (synthetic USD) waiting for a better time to roll to the next dated future. But this is only attractive if the funding is not heavily negative. - Close the C&C fully back into real USD (or stablecoin if you're that way inclined). This will usually result in higher transaction fees, however it can also capture extra premium if the futures have crashed into backwardation.
If I want to do a cash and carry for 10 ETH then I deposit 10 ETH and short 10 futures but do we essentially short 10x futures price? So if futures price is 4000 then for "size" we enter 40,000? Is that right? I can't find this info anywhere on the site. Thanks.
Best explanation I've seen. Thank you!!
Thanks for this great video. Is there a tool/website which identifies up-to-the-minute the coin with the best price difference between spot and future price? It is very annoying to calculate this for every coin to find the best investment....
Did you find one?
good point, but there are very few coins with future contracts available.
Is there a lesson on how to do this cash and carry trade with a perpetuals contract?
this would also work by shorting the perpetual swap instead of a futures contract and work similar as long as the funding rate is positive or am I missing something?
Correct, this works on the perpetual as well. You can think of shorting the perpetual as the variable rate version, and the C&C described in the video using the dated futures as the fixed rate version. You know what premium you are capturing on the dated futures before you place the trade, whereas with the perpetuals you don't know what the future funding rates will be in future. The perpetual version can result in a larger profit though, and certainly has for the last few months as I mentioned recently on twitter here:
twitter.com/cryptarbitrage/status/1374763149639974915
Well explained
hello, how can i find the cash e carry opportunities?
Can you not ramp up the leverage (with minimal collateral) , all on Deribit, by buying the Perpetual Future and selling the future Future, say December, etc? In this way, you shouldn't be at risk for a margin call, correct? Given that Deribet permits 100x leverage... Or am I missing something?
For example: With 1 BTC collateral, could I buy 10 BTC of the Perpetual Long and sell 10 BTC of the Dec 2021? Could I buy and sell 100 BTC worth of each?
This is a very common question, but the short answer is that while you can execute that trade, it will almost certainly make a loss.
It is technically possible to do at leverage of course, but longing the perpetual is not free due to the funding mechanism used to keep the perpetual tracking the index. Funding tends to on average be paid by longs to shorts, and the amount is also often larger than the premium on the dated futures. This results in the leveraged version making a loss.
A profitable way to leverage this trade up would be find some way of borrowing USD at a lower rate than you can capture on the dated future, then execute as described in the video.
I made a post giving the funding rate totals by month for the last couple of years here: twitter.com/cryptarbitrage/status/1374763149639974915
You could argue that doing the reverse at leverage would be a better trade, certainly recently at least. (I haven't actually backtested the full 2 years)
@@Cryptarbitrage Thanks very much for the detailed reply... I knew I was missing something, and that was it: the Perpetual contract funding rate...
@@Cryptarbitrage Seems to be a big difference between CME's futures prices and Deribit's, any idea why? Any advantage in arbitraging between the two? Haven't done the math yet, but since you can buy the CME futures with some leverage vs buying BTC, might be able to get some additional leverage that way...
@@maciejzielinski1274 You will have different market participants at each due to locations and regulations (Deribit is not available to Americans for example), but also the CME contracts are dollar margined, whereas the Deribit contracts are coin margined (i.e. your account balance/margin is BTC).
Certainly possible though for those with access to both and the ability to manage risk appropriately.
can you kindly let me know how to use CALL/PUT premium chart on tradingveiw ???
Thanks for the explanation. From the video I understand that it is necessary to transfer spot BTC from an exchange to Deribit. How much of an impact does the time it takes to transfer BTC to the Deribit wallet have in terms of returns? Is it negligible if transfer is done right away?
What if I transfer my BTC to Deribit and keep shorting the futures as they expire i.e. on a rolling basis? I would still be able to pocket the difference between the spot and the futures right?
Thanks
Other question: would you recommend to buy different futures expirations (I.e. may, june, aug,..) or buy just one far in the future (I.e. mar 2022)? Thanks!
What if I buy the perpetual version in deribit
and short the december future?
I asked the exact same question 4 days ago, see the reply... it explains why this is a losing trade most likely...
Maciej is correct, check previous replies.
In a word though, funding.
@@Cryptarbitrage Thanks to both of you. Now I understand.
Thanks for the useful information. I have a question, example binance quarterly 0625 64000 and spot is 60000. Does It means if I can wait 3 months this is opportunity to make 4000 per btc? Hope to seek some advice from u
Assuming their futures use BTC as collateral like the Deribit ones, then yes that would work exactly the same as described in the video. You would buy 1 BTC for $60k, then use that 1 BTC as collateral to short the June future with a position size of $64,000. After 3 months you'll have $64,000 worth of BTC (which you can then sell back into USD if you wish).
@@Cryptarbitrage perfect.. I will check this out and soon might take up your delta neutral course to hAve a better understanding of the trade.. thanks and have a great weekend ahead
Right now, the June futures is 10% higher than current spot price. That could amount to 40% per year if you're in a bull market (10% quarterly) What kind of premiums, if any, are more in line with bear markets? Could i expect 20% per year (5% per quarter)?
~12 %
Why do you have to sell the underlying asset after you close the futures contract?
They are dollar denominated in this video. So in order to realise your profit it must be in dollars.
You could very easily use assets you are long anyway as collateral for the short. As long as the futures market is in contango when you short the contract you have locked in that profit. You could either wait for the contract to be settled on its date if you don't need the cash or you could keep an eye on the difference in price and close the position early when the difference is low by buying back your short contracts for less money.
Well technically you don't have to (I usually don't), but that's one way of locking the profits back into dollars. You can roll to the next contract instead though for example (mentioned in the video), or just stay long whatever amount of bitcoin you end up with if you prefer. However a basic cash and carry trade like the one described in the video is one that starts off with your funds in dollars (or stable coins) and ends with your funds in the same currency, but a larger amount of course.
You are not trading the direction of bitcoin here, and are only buying it to take advantage of the difference between the current bitcoin price, and the bitcoin futures contract price. You are both long and short bitcoin at the same time, just using different ways of doing so. You're long by holding spot, and short the futures. The difference between the two is what you are capturing.
@@Cryptarbitrage On binance, they have USD(stablecoin) futures and coin futures. So once i purchase the spot BTC, I'll transfer a portion of it as collateral to Binance, and then I would short on the coin futures (BTCUSD quarterly) contract denominated in BTC?
@@voxcon Correct. You would want to use the coin margined futures (BTC), rather than the stablecoin ones.
@@Cryptarbitrage Thanks for the reply. I havent tried it before so yea Id like to make sure about the details. Two last questions if i may: So let's say we are at the end of the contract. Can i just let it expire (do nothing) or is there any advantage to actively closing the position instead of letting it expire? And second, before I roll the contract to the next futures: if i made $1000 profit on the short position, i would assume I have to withdraw $500 and add it to the spot BTC side in order to equalize the next cash and carry trade? Just like, if i made $1000 profit on the spot side of the trade, i would have to take $500 of the spot BTC profit and send it to Binance to make up for the collateral loss, before I could roll it to the next futures contract? In other words, whichever side wins the trade, Id have to send half of that win to the other side in order to re-balance the spot and short for the next trade...
If you close the futures side before expiration because the spread has dropped to zero or close to zero you immediately need to sell your long bitcoin or roll into the next futures ctc to avoid being directionally exposed. If spreads have dropped giving a good opportunity to get out of the futures side, it may not be the best time to roll to the next futures ctc as spreads are small right then, you therefore would have to sell your long bitcoin and incur commissions on that sale. Then start all over again on both legs of the trade. Might be hard to hold the long bitcoin side of the trade through rolls on the futures side, may not be good time for the roll.
Indeed, if the premium goes to zero way before expiry, it's usually due to a price crash which is also happening in the other futures. Rolling in this circumstance is not going to capture much extra. So you can either:
- Put up with a poor rate for the roll.
- Just not close and wait until expiry anyway, hoping some premium returns to the other contracts by then.
- Park the short on the perpetual (synthetic USD) waiting for a better time to roll to the next dated future. But this is only attractive if the funding is not heavily negative.
- Close the C&C fully back into real USD (or stablecoin if you're that way inclined). This will usually result in higher transaction fees, however it can also capture extra premium if the futures have crashed into backwardation.
If I want to do a cash and carry for 10 ETH then I deposit 10 ETH and short 10 futures but do we essentially short 10x futures price? So if futures price is 4000 then for "size" we enter 40,000? Is that right? I can't find this info anywhere on the site. Thanks.