Carry of 0.0056% every eight hours meets a 10.31% day
Should the basis trader keep the spot-plus-perpetual-short position at full size for 0.0056% of funding every eight hours, or cut it until the short leg's margin can absorb another day like Friday's?
The market facts are real; the decision maker is illustrative.
The week and the position
In the week of 27 September 2021, ETH rose 11.71%, from 3059.36 to 3417.73, after three down weeks. It fell to a low of 2782.00 on Wednesday, then gained 10.31% on Friday 1 October and closed in the upper third of a 25.38% weekly range, 21.12% below its 52-week high, on volume 0.8 times its prior 12-week average. Perpetual funding averaged 0.0056% per eight hours, with a maximum of 0.01% and a minimum of -0.013%. An illustrative basis trader holds spot ETH and an equal short in the perpetual.
Judgment
The carry is the trade's only income, and here it is thin: 0.0056% every eight hours against a weekly range of 25.38% and a single best day of 10.31% on which a perpetual short moves against the trader. Cut the position to a size whose margin survives a repeat of Friday's 10.31% rise without forcing the spot leg to be sold at a loss, and keep the spot holding where it can be moved to that margin quickly. Accept lower funding income in exchange for surviving the range.
What would change it
If eight-hour funding holds near its weekly maximum of 0.01% rather than averaging 0.0056%, the carry justifies restoring size. If the rate sits at or below the weekly minimum of -0.013%, the short pays instead of earns and the position should be closed.
What sets this case apart
Here the hedge earned almost nothing while the asset rose 11.71%: the problem is thin carry against a wide range, not the direction of the market.