By Friday afternoons, the atmosphere on commodity trading desks undergoes a significant shift. For the first four days of the week, traders are focused on profiting from their bets.
However, by lunchtime on Fridays, their attention turns to assessing the level of risk they can tolerate until markets reopen on Sunday evenings. The possibility of unexpected events, such as a new war, election results, or unforeseen announcements, can significantly impact trading positions.
Traders must consider the potential risks and consequences of holding positions over the weekend, when they are unable to adjust or rebalance their bets. 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 weigh the risks and consequences of holding positions over the weekend. The question is no longer where the commodity is headed, but rather whether the trader is comfortable living with their position if something unexpected happens while markets are closed. 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 bound by weekday hours, and planning for potential weekend catastrophes has been an integral part of a trader's job.
Earlier this year, an unusual event in the oil options market disrupted this long-standing routine. As tensions escalated between Iran and Israel, traders flocked to crypto exchanges over the weekend to trade derivatives contracts known as '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 distinct from traditional finance. Researchers at Energy Aspects note that the dynamics of pricing short-dated West Texas Intermediate crude options are likely to change due to the rapid growth of perpetuals on crypto exchanges. For years, implied volatility for WTI contracts has decreased 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, which may lead to a decrease in the 'weekend effect' in short-dated WTI options.
In theory, this could create new opportunities for traders to capture profits over the weekend, rather than simply 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 is likely to influence traditional markets, not as a replacement for CME, but as another source of price discovery while the rest of the market is closed. The biggest impact of perps may be that they are starting to influence how some traders behave, with the potential to reshape the traditional market.
However, volumes are still modest, and big-money institutions are cautiously watching. The infrastructure for weekend trading is still lacking, with banks and clearing systems largely operating on weekday hours. Nevertheless, the signs are that old habits are beginning to change for traders, and the assumption that Friday's closing bell marks the beginning of two days of waiting may no longer be permanent.