I exited all of my PA crypto positions over the last week so I thought it might be interesting to look back over the last three months, what worked, what didn't, and what surprised me.
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Once you have a position on it's much easier to add to it, because you can do a near simultaneous spot/futures trade and temporarily run a leveraged futures position (e.g. 50% collateralized) while you wait for your spot to transfer to your futures wallet.
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I was paranoid about exchanges being hacked, so I had positions across six exchanges. The basis varies considerably across exchanges so I would have larger positions where the yield was higher. Generally Binance, FTX, Bybit, Huobi and FTX had the highest yields.
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I also had some short perpetual positions vs long spot. The yield is unpredictable, but it can get really high (like 0.5%/day) and it is very low volatility because there is ~0 duration risk (compared to a hedged futures position which can have ~0.5%/day volatility)
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Something that should have been clear to me in advance is that this trade is structurally short BTC. The basis goes up (=> losses) when BTC rallies and down (=> gains) when BTC sells off. The sell off from 15-22 Apr was really good for this strategy!
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So how did I do? I had targeted a 25%/year return and I made about 10% in three months, so I more than hit the target, though I ended up exiting the positions much earlier than I liked. Cumulative return below (based on snapping my account equity at 5pm each day)pic.twitter.com/t5KmsNfwzc
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Some stats -- daily volatility was about 0.3%, Sharpe ratio was 4.7 and maximum drawdown was ~1.2%, which occured in the first two weeks as the basis rallied very shortly after I entered the trade.
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If you're sharp-eyed you might notice that I said I made ~10% but the chart above only shows a ~7% gain. The other ~3% came from a stupid mistake.
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Around the first week of May I decided to "reach for yield". Doge was rallying and I noticed that I could sell DOGE/USD perpetuals and earn ~3x the yield that I could on a BTC/USD perpetual, so I allocated a small portion of the portfolio to thathttps://twitter.com/macrocephalopod/status/1391137796979560450?s=20 …
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A bit more than a week later was May 19, a huge crypto sell off. My DOGE/USD future was auto-deleveraged to close out a levered long, leaving me naked long DOGE in a falling market. Not good!
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I was in a meeting when I was notified and it was half an hour before I could trade out of the spot position. I was incredibly lucky - my futures buy nearly bottom ticked the market at ~0.2 and I closed out the spot at ~0.31 for a +50% profit (about +3% of my total equity)pic.twitter.com/GYF1b4gkez
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I removed that the pnl from that trade from the chart above - here's what it looks like if I leave it in. Taking a ~6% basis position in a memecoin where I knew there was high risk of auto-deleveraging was a bit stupid, and I was lucky it worked outpic.twitter.com/XbzXkQ9dkV
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I made a bunch of other dumb mistakes too, like sizing the spot/futures legs incorrectly to begin with, occasionally trading the wrong contract and needing to trade out, and messing up a currency conversion once. Fortunately none of them cost me more than a few bps.
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By far the most time consuming thing was doing my pnl each day, so I'd definitely look for a way to automate that in the future. I also bought a subscription to Skew Analytics which was helpful, though probably not strictly necessary.
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Some other helpful resources - FTX Premiums https://ftxpremiums.com/ for tracking basis across multiple coins on FTX
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Binance Premiums https://binancepremiums.com/ (by
@robertmartin88, you should follow him) which was useful for tracking the same thing on Binance.Show this thread -
Was also v helpful to discuss ideas and implementations with
@therobotjames@choffstein and @drewg__Show this thread -
I've closed out all the positions now because basis came down to ~5% on most exchanges and I have better ways to use the cash - but nice to know that if the basis comes back again, I'm ready to get back into the Bitcoin free money tradehttps://twitter.com/thestalwart/status/1407410049874595840 …
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Here’s
@LumberTrading explaining how to do this for even fatter margins in an illiquid as shit market https://twitter.com/LumberTrading/status/1410655494746697729 …This Tweet is unavailable.Show this thread
End of conversation
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