Carry of 0.0017% every eight hours, but a -5.43% hour and a -20.56% week
Should the basis trader keep the full spot-plus-perpetual position to collect 0.0017% per eight hours, or cut it because the carry no longer pays for the short leg's margin?
The market facts are real; the decision maker is illustrative.
The week and the position
In the week of 6 June 2022, ETH fell 20.56% from 1,806.22 to 1,434.84, closing 2.4% of the way up the week's range, close to the low of 1,423.0 reached Sunday at 05:00 UTC. Annualised realised volatility was 103.5%, the worst day was -7.82% (Saturday) and the largest one-hour move -5.43% (Tuesday 00:00 UTC). Eight-hour perpetual funding averaged 0.0017%, peaked at 0.01% and bottomed at -0.0186%. ETH also lost 10.56% against BTC. An illustrative basis trader holds spot ETH and an equal short in the perpetual, collecting that funding, 70.4% below the 52-week high.
Judgment
The hedge itself held; the carry that justified it did not. At 0.0017% per eight hours, the income is far smaller than the margin the short leg needs to survive a 5.43% hour at 103.5% annualised volatility, and the funding range already ran down to -0.0186%. Cut the position to the size the trader would carry as a hedge alone, and keep the spot leg where it can be moved to the short leg's margin quickly. Accept the lost carry as a cost of that margin.
What would change it
If eight-hour funding holds above 0.01%, this week's maximum, for several consecutive readings, the carry can again support full size. If the venue raises maintenance margin on the perpetual while volatility stays near 103.5%, cut further regardless of funding.
What sets this case apart
The hedge never broke; the carry did. The choice is whether near-zero and sometimes negative funding pays for short-leg margin risk, not whether ETH rises.