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. However, as the weekend approaches, their attention turns to risk management, as they must tolerate potential market fluctuations until trading resumes on Sunday evening.
This period of uncertainty can be particularly challenging, as unexpected global events can occur at any time, leaving traders unable to adjust their positions until the markets reopen. According to Mustafa Al Niama, former head of digital assets at Goldman Sachs, 'From about lunchtime on Fridays, trading desks primarily focus on determining what level of risk they can accept for the next 48 hours, rather than seeking to generate profits.' This mindset is prevalent among commodities options traders, who must assess whether they are comfortable holding their positions over the weekend, given the inability to rebalance or adjust their bets during this time.
As Terry Duffy, chairman and CEO of CME Group, notes, 'Risk, whether geopolitical or not, is not bound by the traditional weekday schedule.' Historically, traders have had to adapt to this limitation, but recent developments in the crypto space are altering this landscape. In March, an unusual event occurred in the oil options market, which disrupted the traditional weekend trading routine. As tensions escalated between Iran and Israel, oil-linked futures experienced a sudden surge in volume over the weekend, with traders flocking to crypto exchanges to trade perpetual futures contracts. This shift has significant implications for the oil market, particularly in terms of how traders price short-dated West Texas Intermediate (WTI) crude options.
Researchers at Energy Aspects note that the growth of perpetual futures on crypto exchanges is changing the dynamics of implied volatility for WTI contracts, which has historically been depressed on Fridays due to traders' reluctance to hold positions over the weekend. With the emergence of perpetual contracts, traders can now hedge their exposure over the weekend, potentially leading to increased demand for options and a reduction in the traditional Friday discount. While this development may create new opportunities for traders, it is still largely theoretical, and the impact on traditional markets remains uncertain.
The lack of liquidity and infrastructure to support 24/7 trading remains a significant barrier to adoption, particularly among institutional traders. However, as the use of perpetual futures continues to grow, it may ultimately influence traditional markets, providing an additional source of price discovery and potentially reshaping the way traders approach the weekend.