0.045% every eight hours against a 4.16% hour and a 14.3-point lag to BTC
Should the basis trader keep the equal-sized perpetual short at full size to collect the week's positive funding, or cut it until the short leg's margin can absorb another Thursday?
The market facts are real; the decision maker is illustrative.
The week and the position
In the week of 14 December 2020, ETH rose 8.02% to close 5.08% below its 52-week high, after a 17.49% range and 78.5% annualised realised volatility. Perpetual funding was positive throughout, averaging 0.045% per eight hours and peaking at 0.134%. An illustrative basis trader holds spot ETH and an equal short in the perpetual. ETH gained 8.22% on Wednesday and printed a 4.16% hour on Thursday, yet trailed BTC by 14.3 percentage points for the week, with correlation at 0.79.
Judgment
Funding was positive in every eight-hour interval this week, with a 0.01% minimum, so the carry is worth keeping. But the short leg alone must survive Thursday's 4.16% hour and Wednesday's 8.22% day at 78.5% annualised realised volatility. Size the position to the margin a repeat of those moves would demand, and hold the spot leg where it can be shifted to that margin within hours. Treat the funding as carry that varies with leverage demand, not as a fixed yield.
What would change it
If any eight-hour funding interval turns negative, the trade pays instead of earns and the short should be closed or reduced. If ETH's hourly moves exceed Thursday's 4.16% across several weeks, the size limit must tighten further.
What sets this case apart
The margin risk here comes from a rising market on the underperforming asset, not a falling one: ETH gained 8.02% while lagging BTC by 14.3 points.