Near-zero funding pays for a hedge that just rode a -17.66% week
Should the basis trader keep the spot-plus-perpetual position at full size on 0.0076% eight-hour funding, or cut it until carry can pay for the margin this volatility demands?
The market facts are real; the decision maker is illustrative.
The week and the position
In the week of 3 January 2022, ETH fell 17.66%, from 3828.11 to 3151.97, inside a 30.02% range and 34.97% below its 52-week high, with realised volatility of 81.5% annualised. Perpetual funding averaged 0.0076% per eight hours, peaked at 0.01%, and at times went to -0.0072%, so the short leg both earned and paid. An illustrative basis trader holds spot ETH and an equal short. Three of the prior four weeks were down, and volume ran at 0.76 of its prior 12-week average.
Judgment
ETH closed 17.66% lower, in the lower third of the week's range. But funding of 0.0076% per eight hours is effectively no carry, and it flipped negative on some prints, so the position paid for a margin that must survive a 30.02% range and 81.5% realised volatility while earning almost nothing. Cut the position to the size the short leg's margin can carry through a week like this, and treat any positive funding as temporary rather than as the reason to hold.
What would change it
If eight-hour funding returns to consistently positive territory well above the 0.01% weekly maximum seen here and stays there for several weeks, the size can be restored. If the short leg again receives the -0.0072% print, reduce further.
What sets this case apart
A perfectly hedged basis trade can still be uneconomic when its carry is near zero and its margin faces an 81.5% volatility week.