Charles Schwab is teaming up with Cboe Global Markets to roll out binary options on the S&P 500 — contracts that pay a fixed amount if the index hits a certain level by expiration. The companies plan to offer both all-or-nothing and partial payout versions, targeting a launch in the coming months.
What binary options are
Binary options are a straightforward bet: you either get a predetermined payout or nothing at all. Schwab's version will also include a partial-payout feature, meaning investors don't have to lose everything if the market moves against them. The contracts will be tied to the S&P 500, the most widely tracked U.S. stock index.
These are different from standard options, which let you buy or sell the underlying asset. Binary options settle in cash based on a yes-or-no condition — for example, 'Will the S&P 500 close above 5,000 on Friday?' If yes, the buyer gets the fixed amount; if no, the contract expires worthless.
Why Schwab and Cboe are doing this
The partnership gives Schwab a way to offer event-driven trading without building a new exchange. Cboe will handle the listing and trading infrastructure. For Cboe, it's a chance to grow its options business beyond the traditional puts and calls that already trade in huge volumes each day.
Neither company has said exactly why they chose binary options now. But the product fits a broader push into prediction markets — contracts that let people bet on things like election outcomes or economic data. Schwab's version sticks to the stock market, using the S&P 500 as the underlying event.
How the payouts work
Investors will see two types of payouts: fixed and partial. A fixed-payout binary option pays a set dollar amount if the condition is met. A partial-payout option returns a fraction of that amount if the index comes close but doesn't hit the target. Schwab hasn't disclosed the exact payout ratios or strike price intervals yet.
The contracts are expected to trade on Cboe's exchange, meaning they'll be regulated like other listed options. That's a key difference from some off-exchange binary options that have been criticized for high risk and lack of transparency.
Schwab and Cboe haven't announced an exact launch date. Both companies are likely working through regulatory filings and setting up the trading system. The coming months will bring more details on contract specifications and trading hours.
For now, investors can only wait. The new options won't be available until the exchange gives the final go-ahead.
