Cboe announced plans to introduce an innovative structure that could open access to non-binary prediction markets to traders across retail brokerages.
Prediction markets have functioned as a yes-or-no, all-or-nothing system, with payouts occurring only if a market resolves a certain way. Will Michael B. Jordan win the Oscar? Yes or No. Will Fernando Mendoza be the No.1 overall pick in the NFL draft? Yes or No. Simple, binary choices with clear $0 or $1 per contract resolution.
The binary system is highly restrictive for risk-averse individuals. Enter Cboe with a new idea: what if, along with ‘yes’ and ‘no,’ we added a third option?
Cboe to offer ‘Payout Zone’ third option on prediction markets
The derivatives and securities exchange network, which plans to launch its first mini-SPX market in Q2 2026, announced on March 9 that it will use a “new proprietary and patent-pending framework.” This new system would offer three potential outcomes to a prediction market: a $0 payout, a partial payout within a defined “payout zone,” or a full $100 payout — with the payout zone functioning as a distinct position traders actively choose, not a fallback for losing yes/no bets.
The Mini S&P 500 Index prediction market contracts would be listed on Cboe Options Exchange and centrally cleared by OCC. The securities-based product will allow traders to express an outlook on the U.S. equity market (like where the S&P 500 Index may close at the end of a trading day) with the traditional yes-or-no setup, or by “leveraging the added ‘payout zone’ position to reduce potential losses and potentially benefit from being directionally correct without needing to make a perfect call,” per the press release.
The timing reflects clear market demand: vertical spread trades averaged nearly 580,000 contracts per day in 0DTE SPX options in 2025.
New markets offering nuance to retail traders
“Our new prediction market contracts essentially take the mechanics of a traditional vertical spread – one of the most popular options strategies – and package them in an intuitive, accessible format for a broader audience,” said JJ Kinahan, Head of Retail Expansion and Alternative Investment Products at Cboe.
Considering the growing investor frustration over if and when a market resolves — from the U.S. not “technically” invading Venezuela to Cardi B not “technically” appearing at the Super Bowl — Cboe might get ahead of the curve by mitigating concerns. Kinahan said that these new three-option markets offer “greater flexibility and clearly defined risk compared to traditional event contracts, along with the opportunity to earn a partial return when traders are directionally correct.”
Rob Hocking, Global Head of Derivatives at Cboe, pointed to SPX demand as the core rationale. “There is clear customer demand to trade around market events tied to the S&P 500 Index,” said Hocking, adding that because Cboe’s contracts are built directly on top of the SPX options ecosystem, “pricing is grounded in real market activity, and customers can benefit from the transparency, liquidity and safeguards of our regulated securities exchange.”
A new prediction market trend?
Will this “payout zone” be the panacea to current resolution challenges in prediction markets? Perhaps. The key question Cboe hasn’t answered publicly is how the payout zone thresholds get defined. On an SPX contract, is the zone a fixed range around the target price, or does it vary by contract? And if the framework ever extends beyond index products, who draws the line between “directionally correct” and “close enough”? That’s the resolution problem in a different form.
What separates Cboe’s entry from every other platform in this space is where the product lives. Because the Mini-SPX contracts are listed on Cboe Options Exchange and cleared by OCC as SEC-regulated securities — not CFTC-regulated event contracts like Kalshi’s — any broker already approved for options trading can carry them without new regulatory approvals, new apps, or new account types.
Charles Schwab, the largest retail brokerage in the U.S. by assets, is already named in the press release. James Kostulias, Head of Trading Services at Schwab, said the firm “looks forward to continually enabling new instruments as we see the client demand.” This is significant as traders could eventually find these contracts sitting inside an existing brokerage account alongside their stock portfolio, a fundamentally lower-friction path to a much larger audience.
There is a lot to be seen if Cboe’s model could be implemented in markets not tied to the S&P 500. Cboe has indicated it may extend the framework to additional indices or stocks in the future, but for now the product is anchored firmly in the SPX ecosystem. Schwab’s language is also conditional — “as we see the client demand” — so broad distribution isn’t a given.
“We are proud to support continued innovation within the S&P 500 ecosystem. Cboe’s planned prediction market contracts help new investors benefit from the market-leading integrity, governance, and reliability of the S&P 500, within a simple and easy-to-access contract structure,” said Cameron Drinkwater, Chief Product & Operations Officer at S&P Dow Jones Indices.
