Charles Schwab is working with Cboe to launch S&P 500 'yes-or-no' binary options contracts: WSJ

Charles Schwab is preparing to offer options contracts that let customers place yes-or-no wagers on where the S&P 500 will close, its first step into the prediction-market arena, the Wall Street Journal reported Friday, citing people familiar with the matter.

The brokerage is building the product with Cboe Global Markets and plans to make it available in the coming months, per the report. The contracts are binary options: they pay a fixed cash settlement if the index closes above or below a set level, and nothing if the prediction is wrong.

Schwab also plans to roll out a version that uses a Cboe feature called the "plus zone," which hands traders a partial payout when they are close, but not exactly on target, the Journal reported.

The structure sets Schwab's offering apart from Kalshi and Polymarket, which list event contracts rather than options. The payoff works much the same way, with a defined win or a total loss riding on a single outcome. Schwab and Cboe have discussed extending the lineup to other indexes and benchmarks, according to the report, but the brokerage apparently intends to limit the contracts to events with financial outcomes. That currently rules out bets on the World Cup or next year's Oscars.

The entry marks a turn for Schwab Chief Executive Rick Wurster, who has been openly skeptical of event contracts tied to sports and entertainment, casting them as muddying the line between gambling and investing. He told the Journal in December that prediction markets were "not high on our list at the moment," while conceding the firm would weigh adding event contracts if customer demand turned the question into a competitive necessity.

Schwab's entry into the prediction contract space brings roughly $13 trillion in client assets and tens of millions of brokerage accounts to the table. The move also lands the same year Schwab began rolling out spot bitcoin and ether trading to clients, part of a wider effort to keep retail traders inside its own walls rather than at crypto-native rivals.

Robinhood, Interactive Brokers and Coinbase have all built out or expanded their event-contract businesses over the past year, with Robinhood and Coinbase leaning heavily on Kalshi, and Robinhood has begun standing up its own CFTC-regulated exchange. Kalshi, which The Block reported this week is in early talks with investment banks about an IPO after a May round valued it at $22 billion, handled $16.81 billion in volume in May against Polymarket's $7.08 billion, according to The Block's data dashboard.

Sidestepping the gambling fight

By tying its contracts to a stock index rather than to ballgames or elections, Schwab steps around the legal fight now closing in on its rivals. Kalshi and Polymarket are defending against a run of state lawsuits, including a set filed by Kentucky this week, that accuse them of running unlicensed sportsbooks behind the label of "event contracts."

The CFTC has argued the opposite, that licensed prediction markets answer to its exclusive federal jurisdiction, and it has sued multiple states to press the point. A contract that settles on the closing price of the S&P 500 fits far more cleanly inside existing securities and derivatives rules, which will likely help keep Schwab clear of the sports-betting question that has put more than a dozen states on a collision course with Washington.

Cboe executives have said they see an opening for products that bridge the two worlds, pitching binary options as an on-ramp for traders who have tried prediction markets but not yet graduated to more complex options strategies, per the Journal.