What Exactly Has CBOE Launched?

Cboe Predicts is a suite of binary option contracts on the Cboe Mini-SPX Index (XSP). The mechanics are straightforward: you buy a contract representing a YES or NO position on whether the S&P 500 will close above or below a specific level on a given day. If you are right, the contract settles at $100. If you are wrong, it settles at $0.

The contract prices fluctuate between $0 and $100 based on the implied probability of the outcome. If a contract trades at $65, the market is pricing a 65% probability that the condition will be met. You can buy at $65 and potentially receive $100 (profit of $35), or sell at $65 and keep the premium if the condition is not met.

CBOE is positioning this as a regulated, exchange-traded alternative to the offshore binary options market, which has been plagued by fraud and regulatory action for over a decade. The product is SEC-regulated, cleared through the Options Clearing Corporation, and available through established brokers starting with Interactive Brokers.

That regulatory pedigree is meaningful. But regulation alone does not answer the ethical question. A product can be perfectly legal and still sit outside the boundaries that responsible investors set for themselves.

Why Binary Options Trigger the Gambling Alarm

The ethical concern with binary options is not new. It predates Cboe Predicts by years and spans multiple ethical traditions. Whether you are approaching markets from an Islamic finance perspective, a Christian ethical investing framework, ESG principles, or simply a belief that investing should serve productive economic purposes, binary options raise the same red flags.

Let us walk through the core objections.

1. The All-or-Nothing Structure Resembles a Wager

When you buy a traditional stock, your outcome exists on a spectrum. The company might grow 2%, or 20%, or decline 5%. Your return is proportional to the economic performance of the business you have invested in. When you buy a traditional option, similar logic applies: the payout varies continuously with the underlying price.

A binary option collapses this spectrum into two outcomes: $100 or $0. This is structurally identical to a bet. You are not participating in the economic upside or downside of the S&P 500 companies. You are wagering on a price level at a specific moment. The distinction matters.

In Islamic finance, this falls squarely into the concept of maysir (gambling). The Quran prohibits maysir in Surah Al-Baqarah (2:219) and Surah Al-Ma’idah (5:90-91). The key characteristic that scholars identify is the zero-sum, all-or-nothing exchange of wealth that depends on an uncertain outcome, with no productive economic activity underlying it. The International Islamic Fiqh Academy (IIFA), affiliated with the Organisation of Islamic Cooperation, has consistently ruled that conventional options are problematic, and binary options doubly so because they strip away even the pretence of asset ownership.

But you do not need to be a Muslim to see the problem. The Methodist Church’s investment guidelines, the Quaker-founded EIRIS (now part of Vigeo Eiris), and secular responsible investment frameworks all share a common principle: investment should facilitate productive economic activity. Binary options do not meet this test.

2. No Ownership of the Underlying Asset

When you buy shares in Apple, you own a fraction of a business. When you buy a traditional call option on Apple, you have the right to purchase shares at a specific price, and many investors exercise that right. There is a chain of ownership, however indirect, connecting your capital to a productive enterprise.

Binary options sever this chain entirely. You never own, nor can you ever own, any part of the S&P 500 through a Cboe Predicts contract. The index level is simply the reference point for your bet. In Islamic jurisprudence, this violates the principle that transactions should involve the exchange of real assets or genuine services. Scholars such as Dr Muhammad Taqi Usmani, a former judge of the Shariat Appellate Bench of the Supreme Court of Pakistan and a leading authority on Islamic finance, have written extensively that derivatives untethered from asset ownership lack the substance required for permissibility.

The concept extends beyond Islamic thought. The principle of stewardship, central to faith-based investing across traditions, requires that capital be deployed in ways that serve the real economy. Binary options exist in a parallel universe where money changes hands based on price movements, but no capital reaches the companies whose prices are being referenced.

3. Zero-Sum by Design

In equity markets, all shareholders can profit simultaneously when a company grows. The pie expands. In a binary options market, every dollar of profit comes directly from another participant’s loss. The pie is fixed. One party’s gain is precisely equal to another’s loss, minus fees.

This zero-sum characteristic is another hallmark of gambling. It is why the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI), the standard-setting body for Islamic finance, classifies binary options as impermissible in its Shariah Standards (particularly Standard No. 21 on Financial Papers). The wealth transfer is not linked to value creation. It is a redistribution based on prediction accuracy.

4. No Productive Economic Activity

When a company issues shares, it raises capital to build factories, hire workers, develop products. When a bank provides a mortgage, it enables home ownership. When an insurer writes a policy, it enables economic risk-taking. Even traditional derivatives markets serve a genuine economic function: farmers hedge crop prices, airlines hedge fuel costs, manufacturers hedge currency exposure.

What economic activity does a binary option on the S&P 500’s closing level facilitate? The honest answer is none. It does not provide capital to businesses. It does not enable hedging in any meaningful sense (we will address the hedging argument shortly). It creates a casino-like venue for short-term directional bets on an index level.

The Counter-Arguments: Regulation, Hedging, and Insurance

Proponents of Cboe Predicts will raise several legitimate points. Let us examine each honestly.

Ethical Comparison: Three Approaches to Market Exposure

The following table compares binary options against traditional options and direct equity investment across the criteria that matter to ethical and faith-based investors.

The Broader Problem: When Prediction Becomes Product

Cboe Predicts does not exist in isolation. It arrives alongside the rapid growth of prediction markets such as Polymarket and Kalshi, where participants bet on election outcomes, weather events, economic data releases, and anything else that can be resolved with a YES or NO answer.

There is an important distinction between these platforms and what CBOE is doing. Polymarket operates in cryptocurrency with minimal regulatory oversight. Kalshi is CFTC-regulated but has faced repeated legal challenges over which events are appropriate for prediction markets. CBOE is SEC-regulated and limited to financial index outcomes.

But the direction of travel is clear. Financial institutions are systematically converting prediction into product. CBOE already monetises volatility expectations through the VIX. Now it is monetising directional predictions through binary contracts. The question for ethical investors is whether this financialisation trend serves any purpose beyond extracting fees from participants who, statistically, will lose money over time.

The data from European regulators is sobering. When ESMA banned binary options for retail investors in 2018, it cited research showing that between 74% and 89% of retail accounts lost money trading these products. The products are not designed for retail success. They are designed for retail participation, which is a very different thing.

What Traditional Options Get Right That Binary Options Do Not

It is worth clarifying that this is not a blanket objection to all derivatives. Traditional options, used correctly, serve genuine economic purposes that even many Islamic finance scholars acknowledge.

Covered calls: You own 100 shares of a screened stock. You sell a call option against those shares, generating income while agreeing to sell at a higher price. This is productive. You are being compensated for providing optionality to the market while maintaining your equity position.

Protective puts: You own a portfolio and buy put options to limit your downside. This is functionally similar to insurance. You are paying a premium to protect existing assets. Many scholars consider this permissible under the principle of necessity (darurah) and the broader concept that hedging existing exposure serves a legitimate economic function.

Cash-secured puts: You set aside cash and sell a put option, committing to buy shares at a lower price if they fall. This is effectively a limit order with income. You intend to own the shares.

The common thread? Each of these strategies involves either existing asset ownership or a genuine intention to acquire assets. Binary options share none of these characteristics. There is no asset to own, no exercise mechanism, no possibility of acquiring the underlying. It is pure prediction, pure payoff, pure zero-sum.

What Ethical Investors Should Do Instead

If you are drawn to binary options because you want defined-risk, short-term market exposure, there are better tools that do not compromise your ethical framework.

The Bigger Question: Who Does This Serve?

Every financial product should answer a basic question: who benefits? When a company issues shares, the company gets capital and investors get ownership. When a bank provides a loan, the borrower gets opportunity and the lender gets return. When an insurer writes a policy, the policyholder gets security and the insurer gets premium.

Who benefits from Cboe Predicts? CBOE benefits from transaction fees. Interactive Brokers benefits from commissions. Market makers benefit from the bid-ask spread. And retail participants? They get a regulated way to make binary bets on the S&P 500’s closing level. This is entertainment dressed as finance.

CBOE is a sophisticated company. They created the VIX, arguably the most important volatility measure in global finance. They run one of the world’s largest options exchanges. They understand exactly what they are building with Cboe Predicts, and the target market is clear: retail traders who want the dopamine hit of a quick, defined-outcome bet.

Ethical investing, at its core, is about intentionality. It is about asking whether your capital is doing something productive in the world. Whether your participation in a market mechanism creates value beyond the transaction itself. Binary options fail this test, regardless of how well regulated they are.

The Line Is Clear

CBOE deserves credit for bringing a regulated alternative to a market plagued by offshore fraud. That is a genuine public good. But regulation does not transform a gambling product into an investment product. The structure of binary options, their all-or-nothing payout, their lack of asset ownership, their zero-sum mechanics, and their absence of productive economic purpose, places them firmly on the wrong side of the line for ethical investors across traditions.

The majority scholarly opinion in Islamic finance is clear: binary options constitute maysir. The regulatory consensus in Europe and the UK is clear: binary options are unsuitable for retail investors. The ethical investing consensus across faith traditions is clear: capital should serve productive purposes.

If you want market exposure, own the businesses. If you want to hedge, use traditional options tied to assets you hold. If you want conviction, use data-driven analysis across multiple factors to find where genuine opportunities exist.

The market will always invent new ways to package prediction as product. Your job as an ethical investor is to recognise when a product serves your goals and when it simply serves the exchange’s revenue line.

Cboe Predicts is the latter.