I am trying to understand risks with arbitrage for professional traders with BTC spot (at Coinbase gdax) and CBOE Futures contract.
Let us say, some professional trader "Short sell CBOE Future contract & Buy BTC Spot at Coinbase simultaneously"
At the time of this writing, Futures contract short sell @ $18700 and BTC Spot buy @ $16700 simultaneously.
http://cfe.cboe.com/cfe-products/xbt-cboe-bitcoin-futures
you wait one month for the Futures contract to expire (Jan 17 th) , let us examine two scenarios by contract expiry Jan 17 th .
case 1: Bitcoin price shoots to $25,000
case 2: Bitcoin price drops to $8,000
In both cases on the futures contract expiry date that is January 17 th 2018, bitcoin Futures price and Spot price will be almost same ( give or take $100)
In both cases professional traders profit is $2000 for each futures contract on the investment of $16,700 Spot + $10,000 future initial price.
That is $2000 profit on $26,700 investment for one month period , that works as 7% return per month, annualized 84% . You may need to deduct cost of money that is interest on investment or loan say 6% per year .
One risk I see is, on the Short sell Futures contract, if the bitcoin is keep rising in price , trader needs to supply more money to meet the margin call ( just a technial issue because he is gaining on the LONG Buy bitcoin spot price )
Am I missing some thing ??
Let us say, some professional trader "Short sell CBOE Future contract & Buy BTC Spot at Coinbase simultaneously"
At the time of this writing, Futures contract short sell @ $18700 and BTC Spot buy @ $16700 simultaneously. http://cfe.cboe.com/cfe-products/xbt-cboe-bitcoin-futures
you wait one month for the Futures contract to expire (Jan 17 th) , let us examine two scenarios by contract expiry Jan 17 th .
case 1: Bitcoin price shoots to $25,000
case 2: Bitcoin price drops to $8,000
In both cases on the futures contract expiry date that is January 17 th 2018, bitcoin Futures price and Spot price will be almost same ( give or take $100)
In both cases professional traders profit is $2000 for each futures contract on the investment of $16,700 Spot + $10,000 future initial price.
That is $2000 profit on $26,700 investment for one month period , that works as 7% return per month, annualized 84% . You may need to deduct cost of money that is interest on investment or loan say 6% per year .
One risk I see is, on the Short sell Futures contract, if the bitcoin is keep rising in price , trader needs to supply more money to meet the margin call ( just a technial issue because he is gaining on the LONG Buy bitcoin spot price )
Am I missing some thing ??