Hendrik Ghys Profile picture
Founder @ThalexGlobal
Jul 11 8 tweets 4 min read
Futures are the best way to play funding.

More precisely, future-perpetual spreads.

At $118K, it's a trade that probably no one is thinking about.

Anatomy of a future - perpetual spread trade.

(1/n) There is a mechanical difference between futures & perps in cost of carry.

At any point in time, the future embeds the entire cost until expiration in price, simply by trading at a premium to index ('basis').

When you buy a future, you lock in basis, and effectively fix an average funding rate until maturity.

If perpetual funding rates go up, this (usually) spills over into basis so that the futures' cost of carry aligns with extrapolated funding for the time to maturity.

This means a long future holder is long funding.

If the cost of leverage increases after she bought the future, she can expect basis profits, orthogonal to delta,by virtue of having secured a better funding rate.

By contrast, perpetuals realize their cost of carry over time through funding and if funding rates go up, long perpetual holders simply pay more to stay in position.

A long perpetual holder is short funding.

(2/n)
Jul 31, 2024 5 tweets 1 min read
What is trading?

"Trading is having a view, and taking a position, such that if your view bears out you make money."

- Peter Carr Peter Carr was a legendary quant.

He used the above definition of trading to frame that there are three different types of views when trading volatility.

You could express a view on:
1. Future realized volatility
2. Covariation of implied volatility with its underlying
3. Volatility of implied volatility