I’m bit confused about the Deribit trade. I can see that you can hedge your position with this trade, but I don’t understand how you get the return?
The futures price will converge to the spot price as expiration draws near, but this is not necessarily the spot price you paid… I must be missing something… Any pointer?
The basic idea is this. Let’s say you buy a bitcoin at 23k USD and sell the BTC futures contract for 25k. At expiration date (or sooner) you will get 25k but will have to handover the bitcoin you paid 23k for. No matter the spot price at that point you will still have made 2k (minus fees). If bitcoin has gone up to 30k you are giving away an asset worth 30 in return for 25k, but you still made a profit since you bought it for 23k. But be aware that the high bitcoin volatiliy can eat your margin account.
I’m bit confused about the Deribit trade. I can see that you can hedge your position with this trade, but I don’t understand how you get the return?
The futures price will converge to the spot price as expiration draws near, but this is not necessarily the spot price you paid… I must be missing something… Any pointer?
The basic idea is this. Let’s say you buy a bitcoin at 23k USD and sell the BTC futures contract for 25k. At expiration date (or sooner) you will get 25k but will have to handover the bitcoin you paid 23k for. No matter the spot price at that point you will still have made 2k (minus fees). If bitcoin has gone up to 30k you are giving away an asset worth 30 in return for 25k, but you still made a profit since you bought it for 23k. But be aware that the high bitcoin volatiliy can eat your margin account.