By Friday afternoons, commodity trading desks undergo a significant shift in focus. Instead of concentrating on making profits, traders begin to assess the level of risk they can tolerate until markets reopen on Sunday evenings. This is because anything can happen over the weekend, from unexpected geopolitical events to market-moving announcements, and traders are unable to adjust their positions until trading resumes.
According to Mustafa Al Niama, former head of digital assets at Goldman Sachs, 'From about lunchtime, the desk basically 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 consider whether they are comfortable holding their position over the weekend, given their inability to adjust or rebalance their bets during this time. However, a recent development in the oil options market has disrupted this long-standing routine. As tensions escalated between Iran and Israel, traders flocked to crypto exchanges to trade derivatives contracts known as 'perpetual futures,' which operate around the clock.
This shift has highlighted the existence of a 24/7 venue for oil derivatives trading, forcing traditional finance to reexamine its offline status over weekends. Researchers at Energy Aspects note that the dynamics of pricing short-dated West Texas Intermediate crude options are set to change due to the growth of perpetual futures on crypto exchanges.
The implied volatility of WTI contracts, which previously fell on Fridays as traders reduced their positions to avoid exposure over the weekend, has begun to narrow. This development has implications for the 'weekend effect' in short-dated WTI options, where implied volatility is structurally depressed on Fridays. With perpetual contracts available, traders may be more willing to hold or even buy options they previously would have sold before Friday's close, potentially creating new opportunities for profit. While finding an edge to capture a few basis points of profit may seem like a trader's dream, the impact of perpetual futures on traditional markets remains uncertain.
Volumes are still modest, and large institutions are cautiously watching. Nevertheless, there are signs that old habits are beginning to change for traders, who may no longer have to spend time waiting over weekends.
Instead, they can start making money by trading or tracking these contracts, potentially reshaping the traditional market in the process.