High Market Volatility Trading

High Market Volatility Trading

Definition

Use a combination of spot and futures strategies to take advantage of short-term opportunities.

How Coinsight Can Help

• Identifying an opportunity

  • Notifications

  • Using Historical Market data to analyze whether the position could be held long term

  • Using Current Market data for Kucoin on a single view to more easily look for opportunities

Analysis and Examples

The content so far was geared towards carry trades. However, there are multiple cases where a coin has extreme price volatility across different financial instruments. This is often coupled with very high ecosystem uncertainty, risk perceptions on certain exchanges, deposit/withdrawal halts, network halts, and more.

A good example was Solana trading during the FTX crash. Solana is one of the main investments of the firm that holds over $1B at current market prices, including vested tokens. There was the fear that the FTX crisis would hurt the Solana Ecosystem and/or that they would be forced to sell their Solana holdings. FTX owned over 50 millions SOL tokens, worth over a billion at current prices.

The result is that there were many investors expecting Solana to go down, and the demand for short positions far outpaced the capacity of lending markets and the demands of long term investors. FTX was the issuer of soBTC, which was an asset on Solana Blockchain meant to be 1:1 Redeemable for BTC, and used in multiple lending markets. With FTX uncertainties and then bankruptcy, soBTC lost the parity with BTC, leaving projects that used it as collateral with bad debt. This crippled Solana Lending markets, further exacerbating the problem (SOURCE).

The result is that the Solana perpetual futures were trading at a very deep discount, and the decoupling of prices between futures and spot markets also created price differences between futures prices in different platforms.

At November 9th, 21h UTC, we had the following prices for solana:

- Perpetual Futures at Gate io - 9.88 USDT

- Perpetual Futures at Bybit - 8.73 USDT

- Spot Price at Binance - 12.49 USDT

Exactly one day later, the prices were:

- Gate-18.0751

- Bybit-18.055

- Binance- 18.08

Spot/futures arbitrage would not be available in this case. However, an arbitrage between futures on different platforms would be viable. For example, a trader with $5000 would have been able to open a 500 SOL arbitrage with less than 2X initial leverage (very safe for futures standards), and earn $575 before even considering the funding rates. Earning 10% profit in one day at a relatively low risk. Anyone that was able to somehow get a SOL loan could earn up to 30% instantly. And Solana holders that could cash out $3 per coin, and still retain their exposure.

Additionally, anyone that planned to buy Solana tokens, would benefit from investing through futures rather than the spot market.