Butterfly Arbitrage Across Perpetual and Dated Futures

Summary

This research note develops a three-leg hedge across perpetual, near-dated, and deferred delivery futures. It defines a butterfly spread as the deferred contract price plus the perpetual price minus twice the near-dated contract price. A long spread position buys the deferred and perpetual legs and sells twice the near-dated leg; the reverse positioning shorts the spread. The proposed signal tracks the spread’s exponential moving average and adjusts position size in grid-like increments as the spread departs from that reference.

The note examines five-minute Binance contract data over roughly a month, plots related calendar spreads and butterfly spreads, and presents simulated results for several crypto assets. It argues that the combined spread may be less sensitive to changes in the underlying market price than simpler two-leg spreads. These findings are preliminary: the author acknowledges use of a mismatched backtest engine, uncertain simulation accuracy, and the importance of trading fees. The results are historical and do not establish that the spread will remain stable or profitable.

Key ideas

• The butterfly spread combines three futures contracts as deferred price plus perpetual price minus twice the near-dated price.
• A long spread buys the deferred and perpetual contracts while selling twice the near-dated contract.
• The proposed system compares the spread with an exponential moving average and changes exposure in grid increments.
• Historical plots and backtests examine the spread across several crypto assets and suggest relative stability during underlying price moves.
• The analysis has material limits, including a mismatched backtest engine and assumptions about fees and execution.

Tags

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.