The traditional Friday afternoon mindset on commodity trading desks is undergoing a significant shift. As the week draws to a close, traders are no longer solely focused on minimizing risk until markets reopen on Sunday evening. With the advent of perpetual futures contracts, also known as 'perpetuals' or 'perps,' traders can now hedge their positions and make adjustments over the weekend, a capability that was previously unavailable.
This development has profound implications for the trading landscape, particularly in the context of short-dated West Texas Intermediate (WTI) crude options, where implied volatility has historically been depressed on Fridays due to traders' reluctance to hold positions over the weekend. The growth of perps on crypto exchanges has begun to narrow this discount, enabling traders to better manage their risk exposure. According to researchers at Energy Aspects, the dynamics of how traders price short-dated WTI crude options are changing, thanks to the rapid growth of perpetuals on crypto exchanges. Traders can now hedge their exposure through perpetual futures over the weekend, potentially leading to increased demand for options and a reduction in the Friday selling pressure.
The rise of perps is also influencing the behavior of traders, with some using these contracts to gauge market direction ahead of traditional market openings. While the impact of perps on traditional markets remains uncertain, one thing is clear: the old routine of waiting for the weekend to pass is slowly becoming a thing of the past.
As the head of digital assets at Flow Traders noted, 'The perps... will be a pretty good indicator of where the market is heading.' The trader at a proprietary market-making firm echoed this sentiment, stating, 'It's not really a surprise anymore by Sunday's open.' As the financial landscape continues to evolve, it is likely that traditional finance will be forced to adapt to the new reality of 24/7 trading, and the distinction between weekdays and weekends will become increasingly blurred.