Core Essence of the Argument
The financial regulatory environment has witnessed a significant surge in the popularity of zero-days-to-expiration (0DTE) options, which now constitute over 61% of daily trading volume. This is set against a backdrop where binary options are strictly prohibited for retail investors, despite their strikingly similar economic consequences when approaching expiration. Such regulatory disparity not only undermines the very fabric of market integrity but also contradicts the primary objective of safeguarding retail traders.
The Equivalent Risk Landscape: Understanding 0DTE
A Glimpse into Current Data
As of June 2025, the trading volume for SPX 0DTE options soared to an average of 2.1 million contracts daily, accounting for 61% of the total SPX trading volume. This marked a significant increase from the previous year, where it comprised 52% of the overall volume, according to MarketWatch.
The Economic Payoff
With the clock ticking towards expiration, the outcome of a 0DTE call option starkly mimics that of a digital step function—resulting in either a notable payout (after deducting the premium) if it ends in the money or becoming utterly worthless if it doesn’t. This binary nature of outcomes is essentially indistinguishable from that of a cash-or-nothing binary option.
The Retail Perspective
The trading landscape reveals that approximately half to a little over half of these contracts are in the hands of retail investors, with a mere 4% of this retail trading volume being hedged. This suggests a strong affinity for speculative trading, mirroring the concerns regulators have with binary options.
The Efficiency in Economics: The Case for Binary Options
The Elimination of Gamma/Vega Risks
Binary options stand out by isolating directional risk without the added complexity of gamma or vega fluctuations. This often results in lower implicit costs for traders holding a simple “above/below” market viewpoint.
The Costly Affair of 0DTE Trading
A study conducted by the University of Münster discovered that transaction fees represented 70% of losses in 0DTE trading sessions. This signifies how trading friction and the need for frequent rebalancing can diminish returns, as noted by Investopedia.
Validation through Structured Products
Major banking institutions, including Goldman Sachs and Citibank, have adopted listed digital options within Europe and the U.K. to design financial products with capped risk for institutional clients. This underpins their acceptance as legitimate tools for sophisticated risk management strategies.
The Inconsistency in Regulation: A Comparative View
The Stained Reputation of Binaries
It’s true that the behavioural patterns of many over-the-counter (OTC) binary brokers, especially those operating within unregulated territories, have been less than reputable. The U.K. Financial Conduct Authority’s (FCA) 2021 prohibition on the sale of binary options to retail consumers was estimated to save up to £17 million annually in unforeseen losses, as noted by The Paypers.
The Unaddressed Risks of 0DTE
Paradoxically, economic bets of an identical nature are routinely made on platforms such as the Chicago Board Options Exchange (Cboe) and the Chicago Mercantile Exchange (CME). These venues offer the benefits of central clearing, transparent quotations, and compulsory market-maker hedging. The question arises: if the objective is to curb fraud, why not integrate binary options into these regulated infrastructures?
Precedents in Event Contracts
The Commodity Futures Trading Commission’s (CFTC) endorsement of event-based contracts, including markets for weather occurrences and election results, highlights that binary-style products can be safely incorporated under existing exchange regulations.
The Deception of the “Gambling” Tag
The Commonality of Speculative Endeavours
All speculative activities, whether through futures, leveraged ETFs, 0DTE calls, or binary options, share the inevitable risk of losing the entire premium invested.
The Essence Lies in the Packaging
The fundamental difference emerges not from the financial instrument itself but from the manner in which it is marketed and the framework in which it is sold. Exchange-listed derivatives introduce an inherent layer of transparency and mechanisms to prevent conflicts of interest, which are typically absent in OTC platforms.
A Call for Unified Safeguards
Regulatory bodies should move beyond the blanket prohibition of binaries and instead blanket all short-dated derivative products with FINRA-style risk warnings, advertising content regulations, and suitability checks.
Concluding Thoughts and Recommendations
It is high time for the approval of exchange-listed binary options on platforms such as Cboe and CME, ensuring they are subject to the same comprehensive regime of clearing, reporting, and market-making regulations that govern 0DTE options. Furthermore, it is essential to standardize the regulatory framework for all short-dated derivatives, extending the principles of margin requirements, position limits, and suitability standards consistently across the board. The focus should be shifted towards enforcing transparent risk disclosures and prohibiting advertisements that portray speculative trading as a pathway to easy wealth. If a 15-minute SPX option is deemed legitimate, then its binary option counterpart should not be viewed as its illicit relative but rather as its logical equivalent.
*** Sources Referenced:
- MarketWatch, Cboe Global Markets (NYSE:), “Retail traders just can’t quit risky zero-day options,” July 23, 2025
- University of Münster, “Should You Trade Zero-Day Options?” Investopedia, July 2025
- FCA, “Sale of binary options to retail consumers – permanently banned,” The Paypers, July 2021
