By Friday afternoon, the atmosphere on commodity trading desks undergoes a significant shift. For the first four days of the week, traders focus on making profitable bets. However, by lunchtime on Friday, their attention turns to managing risk until markets reopen on Sunday evening. The possibility of unexpected events, such as geopolitical news or market-moving announcements, can lead to significant price fluctuations, making it essential for traders to reassess their positions before the weekend.
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 well-known among commodities options traders, who must decide whether they are comfortable holding their positions over the weekend, given the inability to adjust or rebalance their bets during this time. Terry Duffy, chairman and CEO of CME Group, notes that 'Risk, geopolitical or not, does not know what day of the week it is.' However, markets have traditionally been closed on weekends, forcing traders to plan ahead for potential weekend and after-hours catastrophes. A recent development in the oil options market has disrupted this long-standing routine. As tensions between Iran and Israel escalated, traders flocked to crypto exchanges over the weekend to trade derivatives contracts called 'perpetual futures,' which operate around the clock.
The total value of all active contracts on the decentralized exchange Hyperliquid hit 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 change may be influencing another corner of the oil market, as researchers at Energy Aspects suggest that the dynamics of pricing short-dated West Texas Intermediate (WTI) crude options are set to change due to the growth of perpetuals on crypto exchanges.
For years, implied volatility for WTI contracts has fallen on Fridays, as traders were reluctant to pay for protection through options or derivatives that they couldn't actively manage while markets were shut. However, with the availability of perpetual contracts, traders can now hedge their exposure over the weekend, potentially leading to an increase in implied volatility.
In theory, this could create an opportunity for traders to capture profits over the weekend if the market becomes chaotic, rather than just sitting on their positions. Energy Aspects estimates that if a continuous futures contract is available, it would create roughly 40% more hedging sessions over the life of a typical contract.
The emergence of perpetual futures has also given traders a tool to gauge how the market will trade when it opens if news breaks out during the weekend. Before perps, it was mostly a guess of how an asset would trade once the traditional market opens.
However, with perps trading 24/7, traders now have a better idea of the bets' direction after the weekend. Hein Tibosch, head of digital assets OTC and product at Flow Traders, notes that perpetual markets have become another source of information before traditional markets reopen. The biggest impact of perps thus far is that the instrument might be influencing how some traders behave. Whether perps can actually reshape the traditional market remains uncertain, but there are signs that old habits are already beginning to change for traders.
With the possibility of continuous trading hours, some traders may no longer have to spend time waiting and can start making money either by trading or tracking these contracts.