Strategy 03
Derivatives
Hedging, carry, and relative value.
Wesvel uses futures and options, perpetual and dated, for four purposes: to hedge directional exposure in spot holdings, to harvest basis and carry, to express relative-value views across venues, terms and assets, and to add exposure to a trade with the downside defined before the position is opened.
Hedging spot exposure
Positions held for yield-generating purposes, staked assets, liquidity positions, lending collateral, carry price exposure that may be unwanted. Short futures can neutralize that exposure while the underlying position continues to generate yield.
Basis and carry
Dated futures typically trade at a premium to spot, converging at expiry. That convergence is capturable through a hedged position. Perpetual funding operates on the same principle on a continuous basis.
Relative value
Funding rates, basis, and term structure differ across venues and assets. These differentials can be traded against each other with limited net directional exposure.
Go deeper
Inside Derivatives
- 01Hedging Spot ExposureUsing short futures to neutralize unwanted price exposure on positions held for yield.
- 02Basis and CarryCapturing the premium of dated futures over spot as it converges at expiry, and the funding equivalent in perpetuals.
- 03Relative ValueTrading differences in funding, basis and term structure across venues, assets and expiries with limited net direction.
- 04Options and VolatilityHow options are used in the book, for asymmetric hedging, for carry on implied volatility, and for expressing views on how much markets will move.