Gambling with Zuck + Bitcoin Cash and Carry Arb (Patreon)

Yo 

Sorry if haven't answered your message/dm on here, there's a lot of them but I'm trying to get to all of them. 

For anyone who might be tryna do the trade from the last post, here's a plot of the arb spread for the nominee bet in annualized-return-on-capital terms over time. 

You can see usually it's pretty low as to be expected. but there are times when it'll jump to +10%.

Polymarket is no longer providing rewards on the "Trump and Biden both lose" leg, which caused a big market maker to pull their quotes there.

It'll be harder to find the arb there, but if you're in the right place at the right time, it still could be worth it.

PEAD Bet on META

Post Earnings Announcement Drift is a well documented effect that basically means it takes a while for earnings announcement information to diffuse into the market or something.  

The big boys have to talk to people before they can do trades, execute over longer periods of time to minimize market impact, etc. That means smaller people can jump in before and effectively frontrun this big flow. 

That's about as much detail as I'll go into because there are ~1 billion papers talking about PEAD on SSRN if you wanna learn more about it.

The effect is not as strong as it used to be, and some people don't even really think it's worth trading anymore. 

However I think with a lot of stuff like this, while the effect may not be strong enough to do a whole portfolio just based on PEAD, maybe it still makes sense to do trades in the edge cases. 

NVDA was an example of this. You didn't have to be super smart to go "ok every person on the planet is talking about AI, the stock just had the third biggest market cap jump in history, and I know I have the tailwind of some PEAD effect at my back. I should just buy the fuken stonk and hold it for a few days." 

This psychologically is hard for me to do. I started my journey in the markets wanting to be a Benjamin Graham, deep value, fundamental investor who buys things that are cheap and sells  things that are expensive.   

At this point I've realized I'm a gambling street degenerate, who enjoys actively trading and looking at markets even if it's gonna kill me. Why fight this impulse? 

All that to say, the best traders I know say value has little bearing on the price inside of a 5 year time horizon, so don't think about it that way. Just find some structural or behavioral effect and pile chips into it. 

META today posted the single biggest market cap gain in history beating AAPL's 191 billion with 200+ billion. 

They also authorized a $50b share repurchase and are now paying a dividend, which people probably think is cool. 

When META jumped on earnings, I knew I was gonna take a trade in the morning. 

I bought 26 shares in the premarket. 

Initially I was gonna do a short NDAQ hedge as I have a lot of long stonk exposure at the moment, but I'm gonna take a lot of that off on Monday so I figured I'd just raw dog it. 

There is no specific hold period. I've heard PEAD effects used to take months and now take days, so I'll probably sell in 2-3 days. Once again, that's completely arbitrary. The effect is noisy, and I'm not sure I could pick a selling point better than a random guess. 

Bitcoin Cash and Carry Arb 

I've only done this trade with small size rn, so I might be missing somethin here. Proceed with caution. 

This is the idea. 

Right now the bitcoin futs on the CME are trading at a premium to spot BTC. 

In simple terms: 

Bitcoin futures are gambling contracts people effectively use to buy bitcoin with leverage. 

After FTX, (this is just a hypothesis I heard) people realized they'd rather buy the bitcoin futs on the CME instead of on some sketchy crypto exchange, which caused the futs to get more expensive. 

The relative cheapness or expensiveness of the futs can be measured by the difference between the futures price and the spot price. This is called the basis - exactly like the basis from the VIX ETN trade. 

You can sell the futs, hedge by buying an equal weight of the spot bitcoin ETFs (or just buying BTC), and collect a risk free profit assuming you don't get liquidated out of the position. 

This is because the futures price slowly converges with the spot price as we get closer to expiration. 

The futures (that you're short) will lose this extra value, and any directional move in bitcoin will be offset by your hedge. 

At the time of writing this, we have the following prices for BTC-USD and the february micro BTC futs.

• MBTG4: 43300
• BTC-USD: 43026

We can see the futures are trading $276 above spot BTC. 

The micro bitcoin CME futures represent 1/10th of a Bitcoin, and require $2236 in margin to go short at IB. 

BITB is a new spot bitcoin etf that holds 100% bitcoin. We'd want to equal cash weight it with the spot price. 

• MBTG4: 4330.0
• BTC-USD: 4302.6
• BITB: 23.41

4302.6 / 23.41 = 184 shares

Margin requirements might vary for this BITB position. I have portfolio margin and IB requires around $1600 to keep this position open. Unfortunately there's no cross margining between spot BTC etfs and the futs. However if there was, I'm sure everyone would be doing this trade and it would go away, so it's kinda ok.  

• BITB Margin: $1600
• Futures Margin: $2236
• Total Margin: $3836
• EV: $27.6

You can expect to earn $27.6/micro contract by feb 23. Being that your margin is around $3836, this is an annualized return on capital of 8-10% net of trading costs and assuming I haven't messed anything up here. 

That may not seem terribly impressive, but that is risk free. IT LITERALLY CAN'T GO TITS UP! 

Minimizing transaction costs is also critical in this trade. The above way is not necessarily the optimal way to do it depending on the situation. If you had a bigger account, you'd want to trade the regular futs instead of the micros.  

Also I'm not sure if BITB is necessarily the cheapest way to hedge. It should work, but I think you wanna try to squeeze out juice on the margins for this kinda thing. 

I believe at IB you can hold treasuries as futures collateral, but I'm not certain. That would juice the returns a little more as well. 

Right now I've been trading earnings which only happens some months out of the year. I'm thinking this will be my go to trade in the interim for the time being. 

Risks

Don't be a retard as I was and redline your margin. Those requirements can spike for any or no reason. 

The above picture is from right around the time when I tragically lost 20k in a week.

Portfolio Update

Everything I touch has been minting at the moment. Bracing myself for when the pain comes back.