RESOLVING THE LEDGER
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For the first four days of the week, traders have been trying to profit from their bets. By lunch on Friday, however, they're thinking about how much risk they can tolerate until markets reopen on Sunday evening.
Anything could happen while markets are closed: news of a new war, an election result, an unexpected OPEC announcement or, as seen recently, a market-moving presidential post . Forty-eight hours can be a long time when traders are holding a position tied to a few of the world's most actively traded markets, and there's nothing they can do until trading resumes.
"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," said Mustafa Al Niama, former Goldman Sachs head of digital assets of the Americas and now head of capital markets at Mysten Labs.
Every commodities options trader knows this ritual. By the end of the week, the question isn't where the commodity is going — it's whether they are comfortable living with their position if something happens while markets are closed, as they can't adjust or rebalance their bets on the weekend.
"Risk, geopolitical or not, does not know what day of the week it is," said Terry Duffy, chairman and CEO of CME Group.
Markets, however, still largely do. And for decades, planning ahead for potential weekend and after-hours catastrophes has just been part of the job for traders.
But earlier this year, something unusual happened in the oil options market, which upended this long-standing routine.
As tensions escalated between Iran and Israel and traders rushed to speculate on prices, oil-linked futures saw a sudden spike in volume over the weekend in March. The catch was that it happened when commodity markets were closed, but the traders didn't need to wait for the traditional market to reopen before reacting. Instead, they traded elsewhere.
Traders flocked to crypto exchanges over the weekend to trade derivatives contracts called "perpetual futures," which run 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, at least by Wall Street's standards, it is no longer just a blip. It highlighted something that barely existed a few years ago: a 24/7 venue for oil derivatives trading, while traditional finance is stuck offline.
"We’re roughly seeing 2-3x more volume on average on weekdays vs weekends for oil perps on Hyperliquid over the last 3 months," said Martin Lee, market insights lead at DWF Labs. Even so, Lee said that weekend trading's share of overall volume has grown by roughly 25% since March, despite activity cooling after the spike that followed the Iran conflict.
And this change might be quietly influencing another corner of the oil market.
Researchers at the energy and macro analytics firm Energy Aspects (EA) said the dynamics of how traders price short-dated West Texas Intermediate (WTI) crude options are set to change, thanks to the rapid growth of similar round-the-clock perpetuals on crypto exchanges.
For years, the implied volatility or how much an underlying asset's price is likely to fluctuate in the future, for WTI contracts, fell on Fridays. Traders were reluctant to pay for protection through options or derivatives that they couldn't actively manage while markets were shut. To avoid being exposed through the weekend, many traders reduced their positions before Friday's close, creating what Energy Aspects describes as a persistent Friday discount in implied volatility.
That discount has begun to narrow, according to Energy Aspects.
"For the first time, traders can hedge options exposure through the weekend, when geopolitical risk has become disproportionately concentrated. This development has implications for the well-documented 'weekend effect' in short-dated WTI options, where implied volatility is structurally depressed on Fridays as long gamma holders liquidate positions they cannot hedge over the market closure," analysts led by Tim Skirrow said in a recent note.
Because perpetual contracts are available, the analysts argued that if traders can hedge oil exposure through perpetual futures over the weekend, they may be willing to hold or even buy options they previously would have sold before Friday's close.
In theory, this could create an opportunity for traders that didn’t exist before: they can capture profits over the weekend if the market becomes chaotic, rather than just sitting on their positions while the underlying prices of the assets move sharply.
In fact, 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. And it's not just due to perps, as CME recently said it plans to add smaller-sized 24/7 contracts for WTI crude and gold. Any continuous futures for commodities would help traders hedge their weekend bets and reduce the Friday selling pressure. (It’s worth noting, however, that the regulator that oversees commodity trading, the Commodity Futures Trading Commission (CFTC), has blocked that contract launch, an action that prompted CME to sue the agency .)
While finding any edge to capture a few basis points of profit sounds like any trader's dream, for most traders, it’s still likely to remain theoretical until continuous trading becomes more widespread. Even traders who find the strategy plausible are cautious not to overstate its impact.
“Is volatility coming down because of that [availability of perps]? I don't think so," said one trader at a proprietary market-making firm active across both traditional and crypto markets, who opted to remain anonymous. "When I'm long volatility or short volatility, all I care about is how much this thing moves. And ...
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