Contents:
1.Bitcoin Spot / Futures Arbitrage
2.Turning a long Bitcoin position into a US (or USDT) denominated Spot / Futures arbitrage position
3.Establishing a Bitcoin / Futures Cash and Carry Position from USD / USDT (To be created later)
4.Closing the position
- Bitcoin Spot-Futures (cash and carry) arbitrage
Investopedia defines Cash and Carry Arbitrage as the following:
So, we look to find a situation where we can be LONG (or BUY) a physical coin, in this case Bitcoin, while establishing a SHORT (or SELL) a Bitcoin Future. Therefore, from a USD perspective, we would be MARKET NEUTRAL, or the Profit or Loss would be not be affected by the price of Bitcoin.
🔸 Opportunities (1000 HRS CET, Dec 12, 2020)
Currently, all quarterly futures, that is futures expiring on 25th of December (15 days) are trading higher (“Premium”) than the price of Bitcoin. The higher ones are HBDM futures and OKEX futures.
Lets examine the math to see what the profit to sell (be short) the Huobi CQ Bitcoin futures and being long Bitcoin.
Huobi Future Bid Price 18340, Huobi Bitcoin Offer Price 18237.
You can sell Huobi CQ futures at 18340 USD, and be long Bitcoin from the price of 18237 USD. Commisions would be about: 0.075% (using BNB) to buy in Bitcoin Physical and 0.04% (Huobi Futures) to sell, or about 0.115%, this is about 21 USD. Thus this leaves about 18340 Less 18237 Less 21 USD or about 82 USD of profit for this trade.
🔸Annualizing the Return
How much return is 79 USD in annualized terms?
There are 15 days to expiry, and 365 days a year. And with spot at 18237, lets see what the return can be.
This is $79 divided $18237, which is about 0.43% which then when divided by days (15), and multiplied by days in a year (365), is about 10.9% on an annualized basis. There are further expiry costs such which would be another 21 US Dollars (commissions), so the returns are reduced to about 8.1% annualized.
One can monitor these futures spreads and then trade them when they offer good returns.
Now, lets examine the NQ futures which are expiring on the March 26th, 2021.
Here, we can subtract $18749 by $18327, giving us about net $422 higher, subtracting $21, this gives about $401 of profits.
We can divide $401 by $18327, which is about 2.2%, which is divided by days (106) and multiplied by days in a year (365), and this is about 7.5% annualized.
We can compare the different expiries to see what the average expected return can be. In this temporary market lull, these opportunities on average do not present a great return. However, we will continue this exercise for learning reasons.
2. Turning a long bitcoin position to a cash/carry USD position
We will examine Huobi in this particular example on taking profit on a long bitcoin position while
Getting an extra boost from selling futures in Huobi.
You will need to send some BTC to Huobi to cover the collateral margin for futures, our trading clients usually
Recommend about 30–40% of the selling notional at least to cover for wild market moves.
You can transfer Bitcoin from Exchange to Futures account after getting the deposit.
🔸 Selling manually on Huobi Futures
You can sell manually on Huobi futures, remember that each contract (1 unit) is worth 100 dollars, so if you want
Say sell 1,000 USD worth of Bitcoin, you can sell 10 contracts. Remember to check that the BTC you transferred from
Exchange (HuobiPro has arrived).
🔸Review of Action Required
By selling 10 Huobi BTC_CQ contracts, you would sell 1,000 dollars worth of Bitcoin, or roughly about .054 Bitcoin or thereabouts. And net of commissions, would recieve about 3 dollars more on such notional than if you had sold Bitcoin on the physical markets.
Profit for 1000 USD worth of Bitcoin
For December Futures, the profit should be around $3.00 for 15 days held. Not a lot, but this involves no mark to market risk to the price of Bitcoin.
4. Unwinding the Huobi Futures
Huobi Futures expire using TWAP (Time Weighted Average Price) on the expiry dates (eg December 25th, 2020 or March 26th 2021), and using the time between 07:00 and 08:00 CET. The future will use this price to close the futures position expiring on this date.
It is recommended that you sell the BTC then matching TWAP that can be done using Executium’s TWAP tool. Likely, you can sell on any exchange where commissions are lower though, Huobi uses specific exchanges to determine the expirty price.
Another way to simply try to sell the Physical Bitcoin in that time period into USD or USDT worth the USD amount that sold in Futures.
Contacts:
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