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What he meant is that the futures and spot prices eventually going to meet, thus you can lock in a sure profit by arbing them. If the difference is 10% right now, that is a 10% sure profit by expiration time, shorting the future and going long bitcoin..
Can you help answer these questions from other members on NexusFi?
I think the 10% spread reflects the fact that trading in the underlying is always a bit of a risk
you may not be able to close the very moment you want to close, there is also the counterpart
risk, etc...
Correct me if I am wrong, but that is not a given in my opinion,
on which exchange are you going to buy the underlying ?
I certainly do not get that? How long will the 10% pricing inefficiency last in this modern electronic market? I thought it might have something to do with a non-ergodic product for which there are no natural sellers and no open interest and no options market.
very very seldom is there an intentional hedge long position in an non-ag underlier. But before that, I'd ask what is the $USD value of the contract and how many participants could even think about that.
Bitstamp and Bitfinex have very similar and low prices, Gemini's is $400 higher, Coindesk's is $200 higher. Gemini is less likely to go down than a foreign brokerage with unknown owners, but you give up some of the profits for safety.
it is either take this free 10% and lock till the expiry or the market thinks we can go above 10% by expiry , since it has already gone above 10% in a day.
this is what im thinking.. hope anyone else can correct me if there is anything else with the settlement prices i do not know
We don't know, probably not for long, but the inefficiency certainly exists right now. Also the sometimes huge differences between exchanges. But because it is still hard to transfer capital quickly between your banks and exchanges, although arbing is possible but not very easy. Usually you need to have money at both exchanges.
Read more about it at r/Bitcoinmarkets on Reddit if you are interested in the topic.
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In an ideal world, you might be buying cash selling futures today, and doing the opposite tomorrow, leaving you with a flat position. In reality in most arbitrage situations though you often build up a position all in one direction. As such, when the financial leg expires you need to liquidate the physical leg at a price equal to, or as close as possible to the settlement price. If your arbing Bitstamp/Bitfinex/Coindesk against the futures, your risk is that when you go to unwind the position that there is a price differential between Bitstamp/Bitfinex/Coindesk and Genini.
Of course you could always roll the futures to the next month, waiting for a better opportunity to unwind. Is there a market on the F/G spread yet? (I'm not at my desk so can't see).
