Understanding the Futures Basis and Contango
In cryptocurrency markets, dated futures contracts (such as CME or Binance September/December contracts) frequently trade above spot price. This premium reflects the cost of carry and leveraged borrowing demand. Because the futures contract price is guaranteed to converge to the spot price on expiration day, the spread can be harvested with zero directional price risk.
The Basis Yield Formula:
Annualized Basis Yield = [(Futures Price − Spot Price) ÷ Spot Price] × (365 ÷ Days to Expiration).
If a 90-day futures contract trades at a 3% premium, the locked-in annualized yield is 12.16%.
If a 90-day futures contract trades at a 3% premium, the locked-in annualized yield is 12.16%.
Executing the Trade
Purchase 1.0 BTC in the spot market and simultaneously sell 1.0 BTC of the 3-month quarterly futures contract. On the last Friday of the quarter, the contract settles at the index spot price. You close both legs and collect the full 3% spread regardless of where Bitcoin traded.
Managing Roll-Over Risks
- Roll over positions into the next quarterly contract 5 to 7 days before expiration to avoid delivery settlement fees.
- Monitor exchange margin requirements to ensure spot collateral value supports futures short margin requirements throughout the holding period.