Why Banning Binary Options but Allowing 0DTE Raises Questions

Core Thesis

Regulators have watched zero‑days‑to‑expiration (0DTE) options explode—now accounting for over 61% of daily SPX volume—while maintaining a blanket ban on binary options for retail investors, despite virtually identical “all‑or‑nothing” economic profiles when expirations are near. This inconsistency undermines both market integrity and the stated goal of protecting retail traders.

1. Risk Equivalence: The ’Digitalization’ of 0DTE

• Data Point: In June 2025, SPX 0DTE averaged 2.1 million contracts per day, representing 61% of total SPX volume—up from 52% a year earlier (MarketWatch).
• Real‑World Payoff: A call with minutes to expiry behaves like a step function: either it finishes in the money and pays out (minus premium), or it expires worthless. That’s materially indistinguishable from a cash‑or‑nothing binary option.
• Retail Use: Roughly 50–60% of these contracts are traded by retail accounts, and only about 4% of that retail flow is even hedged—mirroring the pure‑bet nature regulators condemn in binaries.

2. Economic Efficiency: Binaries Can Lower Hidden Costs

• Gamma/Vega Elimination: Binaries isolate directional risk without exposing traders to gamma or vega swings, often translating to lower implied costs for a pure “above/below” view.
• Fee Drag in 0DTE: A recent University of Münster study found that transaction fees accounted for 70% of losses on 0DTE trades, highlighting how friction erodes returns when traders need frequent rebalancing (Investopedia).
• Structured‑Product Validation: Major banks—including Goldman Sachs and Citi—routinely use listed digital options in Europe and the U.K. to craft capped‑risk payoffs for institutional clients, underlining their legitimacy in sophisticated risk management.

3. Regulatory Inconsistency: OTC Binaries vs. Exchange‑Traded 0DTE

• Binaries’ Bad Reputation: True, many OTC binary brokers engaged in fraud, especially in unregulated jurisdictions. The U.K. FCA’s 2021 ban on retail binaries was projected to save consumers up to £17 million annually from unexpected losses (The Paypers).
• 0DTE’s Real‑World Risks: Yet identical economic bets now occur on Cboe and CME—venues with central clearing, transparent quotes, and mandatory market‑maker hedges. If fraud prevention is the goal, why not migrate binaries onto these same infrastructures?
• Event‑Contract Precedent: The CFTC’s approval of event‑based contracts (e.g., Kalshi’s CPI and election markets) shows regulators can safely list binary‑style products under exchange rules.

4. The “Gambling” Label Masks the True Issue

• All Speculation Is Gambling: Whether through futures, leveraged ETFs, 0DTE calls, or binaries, retail participants face the same probability of a total loss of premium.
• Marketing vs. Product: The difference lies in who offers the contract and how it’s sold. Exchange‑listed derivatives offer built‑in transparency and conflict‑of‑interest safeguards that OTC platforms lack.
• Unified Protections: Instead of arbitrarily banning binaries, regulators should apply FINRA‑style risk disclaimers, ad‑content rules, and suitability requirements to all short‑dated products.

Conclusion and Recommendations

Approve Exchange‑Listed Binaries on Cboe/CME, subject to the same clearing, reporting, and market‑making rules that govern 0DTE options.

Harmonize Short‑Dated Derivative Rules—extend margin, position‑limit, and suitability frameworks equally to 0DTEs and binaries.

Focus on Conduct, Not Payoff—mandate clear risk disclosures and ban “easy money” ads across all near‑term instruments.

If a 15‑minute SPX option is “legitimate,” a 15‑minute binary is its logical sibling—not its criminal twin.

***
Sources:

• Cboe Global Markets (NYSE:CBOE), “Retail traders just can’t quit risky zero-day options,” MarketWatch, July 23, 2025 (MarketWatch)
• University of Münster, “Should You Trade Zero-Day Options?” Investopedia, July 2025 (Investopedia)
• FCA, “Sale of binary options to retail consumers – permanently banned,” The Paypers, July 2021 (The Paypers)