12 April, 2022 seen 305For the past two months, I've been experimenting with trading Bitcoin and Ethereum futures on the Deribit platform. So far I can report mixed success. For most of the time, I was trading a 1-min chart, as it seemed to offer more trades, more excitement, yes it worked quite well, even profitable, but in the end, I always ended up blowing up my account,…
We use bitcoin contango trades occasionally at TerraMatris crypto hedge fund and look at them as short-term deposits with high returns. In today's article I'll share one such trade, we did recently
On September 14, 2023, I bought Bitcoin perpetual futures worth 0.2 BTC at $26,365.90 per Bitcoin and simultaneously sold December 29, 2023 expiry bitcoin futures worth 0.2 BTC at $26,704.50.
This is the so-called futures spread with a width of $338.6 and a holding period of 106 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 December 29, 2023, the Bitcoin spot price is $30,000, if so, our long perpetual future has made us a gain of $3,634.1 while the short Bitcoin future has made a loss of -3,295,5. In the end, we still make a profit of $338.6
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 -11365.9, while the short Bitcoin future made a gain of 11,704.5. We make a profit of $338.6
As you can see, this is market market-neutral trading strategy, we make a profit in both scenarios.
Now, as I actually sold just 0.2 BTC, my max profit also is going to be 2/10 or just $67.72
Anyhow, I'm looking to close this position much earlier, around $30 profit reached.
To control these futures spread worth 0.2 BTC I was required just about $166 when I was using the leverage of 100x for the long position and 50x leverage for the short position. Technically speaking making 67 on 166 equals about 40.3% yield in 106 days.