A hedged ETH position earning 0.0043% per eight hours through a 24.14% weekly fall
Should a basis trader keep a full-size spot-long, perpetual-short ETH position earning near-zero funding through a 115% volatility week, or cut it until carry can pay for the margin it consumes?
The market facts are real; the decision maker is illustrative.
The week and the position
In the week of 17 January 2022, ETH fell 24.14%, from 3,346.89 to 2,539.01, closing in the lower third of its 45.98% range, with a worst day of -14.44% on Friday and a largest hourly move of -4.97% late that same UTC day. Annualised realised volatility was 115.0%. Funding on the perpetual averaged 0.0043% per eight hours, ranging from -0.0133% to 0.01%. ETH also lost 9.85% against BTC. An illustrative basis trader holds spot ETH and an equal short in the perpetual.
Judgment
The hedge worked: the spot loss and the short's gain offset. But the carry that justifies holding it — 0.0043% per eight hours, never above the week's maximum reading of 0.01% — cannot pay for a week in which realised volatility ran at 115% and a single hour moved -4.97%. Cut the position to the size the short's margin can carry through another Friday, and accept the lost carry, which was negligible. Rebuild only when funding consistently exceeds the cost of the margin it ties up.
What would change it
If average eight-hour funding holds above the week's maximum of 0.01% for several weeks while hourly moves shrink well below -4.97%, the position becomes worth carrying at full size. If funding turns persistently negative, the trade pays instead of earns and should be closed outright.
What sets this case apart
This is a carry-versus-margin-cost decision on a perfectly hedged book; price direction is neutral, and the question is whether near-zero funding justifies the volatility exposure of the short leg's margin.