Trading & Markets

Carry

The return earned from holding a position when nothing changes.

Positive carry: the position pays you to hold it, as with a high-yield currency funded in a low-yield one, or a short option collecting theta.

The characteristic risk profile. Carry strategies produce steady small gains and occasional large losses - strongly negative skew. Picking up pennies in front of a steamroller is the standard description and it is accurate.

Why they look good on paper. Negative skew inflates the Sharpe ratio for years, because the tail has not arrived yet. Asking about skew is how you find the risk the headline numbers hide.

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