imageBitcoin soars into CME November futures expiry due unwinding of Reverse Cash and Carry trade - Delta Exchange

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Delta NewsNovember 29, 2019

Bitcoin soars into CME November futures expiry due unwinding of Reverse Cash and Carry trade

Pankaj Balani
CEO, Delta Exchange
November 29, 2019
What's in this post?

    Bitcoin prices jumped from about 7500 to 7800 into the CME November futures expiry.

    CME monthly futures expire at 4pm London time on the last Friday of the month. Upon expiry the futures are settled at the settlement price. The settlement price is taken from the CME CF Bitcoin Reference Rate, which tracks the price of Bitcoin against USD in the spot market.

    During the November futures cycle Bitcoin price slipped from above $9000 mark to below $6600.

    Due to immense selling pressure on Bitcoin this month, the November futures on Bitcoin had started to trade at a discount to the spot price. The futures were trading roughly 2% cheaper than where the spot price was.

    This created a good opportunity for traders to sell their Bitcoin and open a long position in the November futures. Thus keeping their Bitcoin exposure same but locking a 2% arbitrage. This is also known as Reverse Cash and Carry trade, wherein you sell your position in the spot and take a long position in the derivative contract.

    About 15 days prior to the November expiry CME Bitcoin futures were trading at ~ 2% discount to spot. This would have attracted many traders to get a sweet 2% extra return in just 2 weeks.

    On expiry the futures and spot price converge and the futures contract would cease to exist. Thus traders would close or expire their futures position and buy Bitcoin back in the spot market to maintain their original exposure. Thus the price of Bitcoin started to rise into the expiry of BTCX2019, the Bitcoin November futures on CME, as the reverse cash and carry trade was unwound.

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