Detailed Explanation of Carry Trade Strategy
I. Definition and Profit Method:
Carry Trade, also known as cash arbitrage or arbitrage trading, is a neutral market arbitrage strategy. The profit method of carry trade roughly involves leveraging the price difference between the same underlying asset in the spot and options trading markets during the same period, achieving arbitrage through cross-variety trading methods. The表现形式 of price spread is mainly options premium and spot premium.
II. Options Premium and Spot Premium
Options premium and spot premium are terms used to define the forward curve structure. Specifically, when the market is in contango (options premium), the forward price of options contracts is higher than the spot price; when the market is in backwardation (spot premium), the forward price of options contracts is lower than the spot price.
When the market is in contango (i.e., the options price of the same underlying asset is higher than the spot price), it belongs to an options long position or spot short position market. Conversely, it belongs to an options short position or spot long position market.
III. Why It Can Always Be Profitable:
With the execution of大量 arbitrage trading, the price spread between cross-varieties will be gradually flattened. Therefore, as the settlement delivery date approaches, the premium will evaporate. On the settlement date, the options price converges with the spot market price, generating relatively risk-free returns. So at expiration, traders will not incur losses. Regardless of how market trends change, traders can ultimately earn returns, and the magnitude of returns depends on the degree of options premium.
IV. Trading Premium and Trading Details:
1. Options Premium:
Leg 1: Buyer buys spot
Leg 2: Seller sells options
2. Spot Premium:
Leg 1: Buyer buys options
Leg 2: Seller sells spot
3. Notes:
1) Number of legs = 2, indicating this strategy has only 2 legs
2) Leg 1 trading instrument ≠ Leg 2 trading instrument
One leg is spot, the other is delivery or perpetual contract
3) Leg 1 quantity = Leg 2 quantity * contract multiplier
Spot leg quantity = delivery or perpetual notional quantity
4) Leg 1 trading direction ≠ Leg 2 trading direction
Leg 1 and Leg 2 have opposite trading directions, one is buy, the other is sell
5) Both legs have the same underlying asset
returns curve example diagram
V.Specific Trading Example:
At time T, Bitcoin spot price is $39,490, and Bitcoin contract current quarter price is $39,632. Therefore, the user's trading strategy should be to buy spot and simultaneously sell contracts.
Leg 1: Buy Bitcoin spot
Leg 2: Sell Bitcoin contracts
When the contract is delivered, the spot price and contract price will converge. The final price may present three scenarios:
1) Higher than spot price — assume $40,000
Leg 1 returns: 40,000 – 39,490 = $510
Leg 2 returns: 39,632 – 40,000 = -$368
Total returns: 510 – 368 = $142
2) Lower than spot price — assume $39,000
Leg 1 returns: 39,000 – 39,490 = -$490
Leg 2 returns: 39,632 – 39,000 = $632
Total returns: 632 – 490 = $142
3) Between the original spot and contract prices — assume $39,600
Leg 1 returns: 39,600 – 39,490 = $110
Leg 2 returns: 39,632 – 39,600 = $32
Total returns: 110 + 32 = $142
Disclaimer
This article may contain product-related content that is not applicable to your region. This article is intended to provide general information only and does not assume responsibility for any factual errors or omissions herein. This article represents only the author's personal views and does not represent the views of OKX. This article is not intended to provide any of the following advice, including but not limited to: (i) investment advice or investment recommendations; (ii) offers or solicitations to buy, sell, or hold digital assets; or (iii) financial, accounting, legal, or tax advice. Holding digital assets (including stablecoins) involves high risk, may fluctuate significantly, and may even become worthless. You should carefully consider whether trading or holding digital assets is suitable for you based on your financial situation. For questions regarding your specific situation, please consult your legal/tax/investment professional. The information appearing in this article (including market data and statistics, if any) is for general reference only. Although we have taken all reasonable precautions in preparing these data and charts, we assume no responsibility for any factual errors or omissions expressed herein. © 2025 OKX. This article may be reproduced or distributed in its entirety, or excerpts of 100 words or less from this article may be used, provided such use is non-commercial. Any reproduction or distribution of the entire article must also prominently state: "Copyright © 2025 OKX. Used with permission." Permitted excerpts must cite the article title and include attribution, such as "Article Title, [Author Name (if applicable)], © 2025 OKX". Some content may be generated or assisted by artificial intelligence (AI) tools. Derivative works or other uses of this article are not permitted.
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