A Word About "Arbitrage"...

bone said:
What’s the CTD on the CME BTC futures contract?
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Obviously, there isn't one since it's settled on a cash print. That actually makes the print a very scary risk since CME don't have a functioning EFP market for bitcoin - if you can't smack the print exactly, you can very much get fucked. It's a very scary trade, similar to VIX/strip "arbitrage".

Treasury futures basis is a very tame trade in comparison - you know your deliverable with high degree of certainty (especially these days), you have a functional market for basis packages, you can even try to shop for term repo.
 
Yeah, I’ve traded the Treasury Basis Sporto. You were just looking for a place to drop names.

Why else interject a fungible futures contract blowout tangent from left field into a cash settled contract discussion.

Same Lazy Element said:
Obviously, there isn't one since it's settled on a cash print. That actually makes the print a very scary risk since CME don't have a functioning EFP market for bitcoin - if you can't smack the print exactly, you can very much get fucked. It's a very scary trade, similar to VIX/strip "arbitrage".

Treasury futures basis is a very tame trade in comparison - you know your deliverable with high degree of certainty (especially these days), you have a functional market for basis packages, you can even try to shop for term repo.
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Sig said:
OK, that sounds like a good explanation of why it would tend to try to move in a direction, but that's not what we're talking about here. What we're talking about is the explanation for why any deviation in either direction isn't arb'd away in seconds? The risk free rate on short term treasuries is sub .1%, this is 10% plus, two orders of magnitude larger. If Mr. Market didn't think there was any risk, that would be arb'd away in a heartbeat, just like any deviation in the S&P futures from spot taking into account the risk free rate and dividends is. Or any of the other financial futures, all of which trade within a hair of the equation that governs the risk free arb condition. The only difference between them and Bitcoin futures trading on unregulated exchanges is the requirement to entrust money to an unregulated exchange. Even the flash crashes don't impact you when you've got BTC and BTC futures at the same broker collateralizing each other unless you've got some serious lag on futures following spot and a hair trigger autoliquidation algorithm going on.
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Not trying to beat a dead horse but read below by sle. Now you have 3 people saying it's probably not counterparty risk vs you.

Same Lazy Element said:
The futures trade at a premium to spot becuse of the inability to immediately collapse the arbitrage and thus exposing you to a margin mismatch on a tail move. The calendar basis is just a proxy for the spot margin basis and is an expectaton of a spot basis (that's why it's usually smaller than spot/prompt). This is especially true in cryto which does not have a developed funding/lending market. There is also a meaningful risk of getting a nasty settlement print that you can't trade

It's an arbitrage in a technical sense, but the microstructure makes it a risky arbitrage. Similarly, for example, a VIX settlement trade is an arbitrage in a technical sense but the microstructure makes it pretty risky and a well known firm has blown up on it.
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tsznecki said:
Yes we are. Read his original post here: https://www.elitetrader.com/et/posts/5349974
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OK. I'm afraid at this point you're so focused on "winning" this discussion that you're not actually tracking the points being made. From the beginning of this conversation I've advocated that the returns from what appears to be an "arb" opportunity is simply a reflection of the risk involved in executing that "arb". For the unregulated exchanges, much of that risk is in the exchange failing. In regulated exchanges, @sle has helpfully added some more complex and nuanced risks that a naïve view of the arb opportunity miss. Some apply just to CME (like no EFP) while others apply to both. No matter the case, the point is that entering into this trade get's you the appropriate risk adjusted return and if one thinks it's a spectacular return they're not accounting for all the risks. I'm not sure if you disagree with that or you're just being disagreeable?
 
Sig said:
OK. I'm afraid at this point you're so focused on "winning" this discussion that you're not actually tracking the points being made. From the beginning of this conversation I've advocated that the returns from what appears to be an "arb" opportunity is simply a reflection of the risk involved in executing that "arb". For the unregulated exchanges, much of that risk is in the exchange failing. In regulated exchanges, @sle has helpfully added some more complex and nuanced risks that a naïve view of the arb opportunity miss. Some apply just to CME (like no EFP) while others apply to both. No matter the case, the point is that entering into this trade get's you the appropriate risk adjusted return and if one thinks it's a spectacular return they're not accounting for all the risks. I'm not sure if you disagree with that or you're just being disagreeable?
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Wow. After your rant directed toward me on seeing other perspectives here:

https://www.elitetrader.com/et/threads/a-word-about-arbitrage.356875/page-5#post-5349642

Which I agreed it is possible here:

https://www.elitetrader.com/et/posts/5349763

Then @Same Lazy Element says the same thing @misterkel and I have been saying, that is it is not counterparty risk, even though there are risks present.

You write the above after melting down yet again, and say I'm focused on "winning" when you refuse to consider a viewpoint at least 3 others have been saying while criticizing myself for something you are blatantly doing. Talk about pot calling the kettle.

sle didn't say a single word about non regulated exchanges. His response is to my question to you about CME BTC futures.

I don't believe I need to be civil anymore.
 
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