Charles Schwab to launch S&P 500 binary options with Cboe

Charles Schwab is partnering with Cboe Global Markets to introduce new financial contracts that will allow its customers to make yes-or-no predictions on the performance of the S&P 500, marking the brokerage giant's entry into the growing prediction markets sector. The products are expected to become available in the coming months.

The contracts will function as binary options, paying a fixed cash settlement if the S&P 500 closes above or below a predetermined level at expiration and nothing if the condition is not met. While structured as options rather than the futures contracts used by dedicated prediction market platforms, they offer a similar fixed-outcome structure for wagering on market movements.

In addition to these all-or-nothing contracts, Schwab plans to offer a product incorporating a Cboe feature known as the "plus zone." This feature provides a partial payout to traders whose predictions are directionally correct, even if the index does not finish at the exact target level. Cboe introduced this framework earlier this year as an alternative to standard binary options.

Schwab's move places it alongside other brokerages, including Robinhood and Interactive Brokers,...