While working on the Terramatris crypto hedge fund I came up with an idea once in a month to re-invest the total value of the fund into the so-called Bitcoin contango trades. As the total value of the fund was about $74 at the end of September that's capital I put in work with bitcoin futures.
Without further ado:
On September 29, 2023, I bought Bitcoin perpetual futures worth 0.135 BTC at $27,162.50 per Bitcoin and simultaneously sold October 27, 2023 expiry bitcoin futures worth 0.134 BTC at $27,260.00.
This is the so-called futures spread with a width of $98 and a holding period of 28 days.
The closer the expiry date comes, the narrower the spread will turn, in the end converging with the spot price (or long perpetual price), thus realizing the maximum gain from the trade with almost 0 risk. Not to say this trade is market neutral. We don't need to worry about the Bitcoin price on the expiry.
Let me illustrate
Say on October 27, 2023, the Bitcoin spot price is $30,000, if so, our long perpetual future has made us a gain of $2,837.50 while the short Bitcoin future has made a loss of -$2,740.00. In the end, we still make a profit of $97.5. Our profit will be just 0.135 part of it or $13.16
We make a profit even in case the Bitcoin spot price drops to $15,000 - in such case our long perpetual futures have made us a loss of -$12,162.50, while the short Bitcoin future made a gain of $12,260.00. We still make a profit of $97.5 or $13.16.
As you can see, this is market market-neutral trading strategy, we make a profit in both scenarios.
To control these futures spread worth 0.135 BTC I was required just about $106.43 when I was using the leverage of 100x for the long position and 50x leverage for the short position. Technically speaking making 13.16 on 106.43 equals about 12.36% yield in 28 days.
