- Charles Schwab is partnering with Cboe Global Markets to offer all-or-nothing options contracts on the S&P 500, according to people familiar with the matter.
- The binary options will pay a fixed cash settlement or nothing depending on whether the index closes above or below a target price, and will be available to Schwab customers in the coming months.
- Schwab CEO Rick Wurster had previously criticized prediction markets tied to sports or entertainment as blurring the line between gambling and investing, but said in December the brokerage would consider offering them if it became a competitive necessity.
- Schwab and Cboe have discussed rolling out contracts tied to other indexes or benchmarks, but the brokerage plans to limit offerings to events with verifiable financial outcomes.
Charles Schwab is partnering with Cboe Global Markets to offer all-or-nothing options contracts tied to the S&P 500, becoming the latest mainstream brokerage to enter the prediction market space. The contracts, which function as yes-or-no wagers on whether the index closes above or below a target price, will be available to Schwab customers in the coming months, according to people familiar with the matter.
The S&P 500 closed at 7,500.58 on June 19, according to FRED data.
The binary options differ slightly from futures contracts offered by platforms such as Kalshi or Polymarket, but operate on the same principle: they pay a set cash settlement or nothing at all, depending on whether the index closed above or below the target price. Schwab is also rolling out a feature called “the plus zone” that allows traders to earn a partial payout if they are mostly right, even if the closing price of the index is not exactly what they predicted, the people said.
The move marks a significant shift for Schwab, whose CEO Rick Wurster had previously criticized event contracts tied to sports or entertainment as blurring the line between gambling and investing. In December, Wurster told The Wall Street Journal that prediction markets were “not high on our list at the moment.” But he also conceded Schwab would need to consider offering some event contracts if it “becomes a competitive necessity in the brokerage space—that people really want to buy stocks and have access to prediction markets at the same time.”
Schwab is not the first mainstream brokerage to embrace prediction markets. Rivals including Robinhood and Interactive Brokers have already rolled out similar offerings as the tools have surged in popularity among retail traders. Cboe began discussing bringing back binary options contracts months ago as demand for yes-or-no wagers grew, with Cboe executives saying the contracts could appeal to traders who have experimented with prediction markets but have not yet graduated to complex options strategies.
Schwab and Cboe have also discussed rolling out contracts tied to other indexes or benchmarks, the people said. However, the brokerage plans to stick to events with verifiable outcomes in the world of finance. Contracts tied to the World Cup or the Oscars are not under consideration.
Prediction markets have exploded in popularity over the past couple of years by allowing traders to place bets on a variety of economic, cultural and political events, from elections and corporate earnings calls to the Super Bowl. The expansion has drawn increased regulatory attention: MSI previously reported that the CFTC is preparing to propose new rules for prediction markets that would allow most sports bets, and that the Senate has banned its members and staff from betting in such markets.