Earning 0.0362% per eight hours through a 20.65% fall
Should the basis trader keep the spot-plus-perpetual pair at full size, or cut it so the short leg's margin survives a rebound after a 20.65% collapse?
The market facts are real; the decision maker is illustrative.
The week and the position
In the week of 24 February 2020, ETH fell 20.65%, from 274.50 to 217.81, closing near the bottom of the week's range at the 11.6 mark of that range and 39.14% below its 52-week high, after four positive weeks of 12.23%, 21.23%, 13.27% and 6.02%. Volume was 2.61 times the prior 12-week average, realised volatility reached 105.1% annualised, the worst day lost 9.22% and the largest one-hour move was 4.26%. Perpetual funding stayed positive, averaging 0.0362% per eight hours. An illustrative basis trader holds spot ETH and an equal short in the perpetual.
Judgment
The pair cancelled the 20.65% fall on price; what it earned was funding that averaged 0.0362% per eight hours, paid on a short leg now sitting in profit while spot trades 39.14% below its 52-week high. Keep the trade, but size the short's margin for a rebound as fast as Wednesday's 4.26% hour, and treat the funding as carry that vanishes when the market turns up. A 32.0% range and 105.1% annualised volatility make 0.0362% per eight hours a thin return for the margin held.
What would change it
If funding averages below zero for two consecutive eight-hour windows, the pair stops paying and the position should be reduced or closed. If ETH closes back above the week's open of 274.50 while funding stays positive, the short leg's margin requirement can be relaxed.
What sets this case apart
Funding stayed positive through a 20.65% collapse; the decision turns on margin for a profitable short leg after a one-sided week, not on price direction.