Delta Neutral 101

"Delta-Neutral" describes trading strategies that hold a mix of long and short positions that offset each others price movements, making the overall position less impacted to small price fluctuations in the underlying assets.

For example, you could buy 1 Bitcoin and sell a short futures contract for 1 Bitcoin. If Bitcoin declines in value, the short futures contract increases in value, offsetting the price decline.

The trade can be structured in various ways to seek profit.

For example, in funding rate arbitrage (similar to the example above), you hold Bitcoin and sell a short perpetual futures contract, earning a profit from the positive funding rate that is paid to hold the short position.

Generally speaking, funding rates remain positive for extended periods of time because market participants expect future prices to be higher than current prices, leading to futures contract prices being higher than current asset prices. This market pattern is referred to as "Contango".