As the week draws to a close, the atmosphere on commodity trading desks undergoes a significant shift. For the first four days, traders focus on maximizing profits, but by Friday lunchtime, their attention turns to managing risk until markets reopen on Sunday evening.
The 48-hour market closure can be a prolonged period, especially when holding positions tied to highly active markets, with no opportunity to adjust or rebalance bets. According to Mustafa Al Niama, former head of digital assets at Goldman Sachs, 'the desk essentially stops thinking about making money and starts thinking about what they can live with for roughly 48 hours until the Sunday evening reopen.' This ritual is familiar to every commodities options trader, who must assess whether they are comfortable with their position if unexpected events occur over the weekend. However, a recent development in the oil options market has disrupted this long-standing routine. As tensions escalated between Iran and Israel, oil-linked futures experienced a sudden spike in volume over a weekend in March.
Traders flocked to crypto exchanges to trade 'perpetual futures,' which operate around the clock. The total value of active contracts on the decentralized exchange Hyperliquid reached a record $1.2 billion on March 8, a Sunday when traditional commodity markets were closed.
While weekend volume is still smaller than on weekdays, it is no longer negligible. This shift highlights the emergence of a 24/7 venue for oil derivatives trading, which is influencing traditional finance. Researchers at Energy Aspects note that the dynamics of pricing short-dated West Texas Intermediate crude options are changing due to the growth of perpetuals on crypto exchanges. The implied volatility of WTI contracts, which had traditionally fallen on Fridays, is now narrowing.
Traders can hedge options exposure through the weekend, which may lead to a decrease in the 'weekend effect' in short-dated WTI options. The availability of perpetual contracts is creating new opportunities for traders to capture profits over the weekend, rather than simply sitting on their positions. However, finding an edge to capture a few basis points of profit remains a challenge, and most traders consider this strategy theoretical until continuous trading becomes more widespread.
The growth of perps trading is also influencing the behavior of some traders, who are starting to use these contracts to gauge the direction of the market when traditional markets reopen. Perpetual markets have become another source of information before traditional markets reopen, providing traders with a better idea of the bets' direction after the weekend.
The biggest impact of perps may be their potential to influence traditional markets, not as a replacement, but as another source of price discovery while the rest of the market sleeps. Whether perps can reshape the traditional market remains uncertain, but there are signs that old habits are already beginning to change for traders. With the emergence of continuous trading hours, some traders may no longer have to spend time waiting and can start making money by trading or tracking these contracts.