Cash & Carry Strategy Explained (Trading)

Cash & Carry is based on the time component of a future. Basically if I buy an asset in the spot market, I am buying it at the real price at that moment. However, if I invest in a Future I will buy (or sell) it at a certain date in the future (expiry). To apply this strategy, what will I do?

1) I hold a spot position (for example 1 ETH or 1 BTC) so I am "long" (I hope the price increases)
2) I open a short position on the expiry future (medium/long distance)

The objective will be to earn on the premium (price difference) when the "contango" situation occurs (i.e. a very bullish long-term expectation for that asset). I remember that a future has 2 characteristics: "contango" (the future costs more than the spot) and "backwardation" (the future is discounted compared to the spot).


If I hold 1 BTC "spot", the short on the future must have the same size: 1 BTC (delta neutral). Of course I can also use leverage. Then I will wait for the future to expire. As expiry approaches, the price of the future will converge with the spot price of the same asset, which is why to have a higher premium it is necessary to apply this strategy far from expiry. For example, I hold 1 BTC when the price is $40,000 and the future that expires in 6 months sees a price of $45,000 (I have a premium of $5,000).


To apply it on Bybit: derivatives/inverse contract/Futures/BTCUSD-expiredate. As margin I will use the crypto itself (for example BTC and not USDT in "inverse derivatives accounts"). If the price of Bitcoin rises during the period, you will make a profit, since you sold the futures contract at a higher price than you bought the BTC (spot). Theoretically you could also use a similar strategy with staking: if I deposit a staking asset and go "short" at the same time, it would be a guaranteed profit (staking rewards). However, the futures price already prices in this situation.


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