By Friday afternoons, commodity trading desks undergo a significant shift in focus. For the first four days of the week, traders concentrate on making profitable bets, but as the weekend approaches, their attention turns to managing risk.
With the possibility of unexpected events such as wars, elections, or surprise announcements, traders must carefully assess their positions before the markets close. According to Mustafa Al Niama, former head of digital assets at Goldman Sachs, 'from about lunchtime, the desk stops thinking about making money and starts thinking about what they can live with for roughly forty-eight hours until the Sunday evening reopen.' This ritual is familiar to every commodities options trader, who must weigh the risks of holding a position over the weekend when markets are closed. However, a recent development in the oil options market has disrupted this long-standing routine.
As tensions between Iran and Israel escalated, oil-linked futures saw a sudden surge in volume over the weekend in March, with traders flocking to crypto exchanges to trade perpetual futures contracts. 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, highlighting the emergence of a 24/7 venue for oil derivatives trading. Researchers at Energy Aspects note that the dynamics of short-dated West Texas Intermediate crude options are set to change due to the rapid growth of perpetuals on crypto exchanges. The implied volatility of WTI contracts, which typically fell on Fridays, has begun to narrow, as traders can now hedge their exposure through perpetual futures over the weekend. This development has significant implications for the 'weekend effect' in short-dated WTI options, where implied volatility is structurally depressed on Fridays.
In theory, this could create new opportunities for traders to capture profits over the weekend if the market becomes chaotic. However, finding an edge to capture a few basis points of profit remains a challenge, and traders are cautious not to overstate the impact. The lack of meaningful liquidity is a major reason institutional traders are still staying away from perpetual futures.
The volume of perps linked to traditional assets has increased, but it is still relatively small from Wall Street's perspective. Large institutions, such as banks, already have systems in place for traditional market hours and would need a different structure for weekend trading.
The existing infrastructure, including clearing and settlement rails, is not yet equipped to handle 24/7 trading. As a result, perpetual futures remain in the domain of crypto-native firms, proprietary trading shops, and savvy retail traders.
However, perps are starting to play a significant role in gauging how the market will trade when it opens after the weekend, providing traders with a better idea of the bets' direction. The biggest impact of perps may be their influence on traditional markets, potentially reshaping the way traders behave. Whether perps can actually transform the traditional market remains uncertain, but there are signs that old habits are already beginning to change for traders.