Hedge fund all-or-nothing trades gain traction
While many traders — from mom-and-pops to systematic hedge funds — are using zero-day-to-expiry listed options, large investors have increasingly turned to over-the-counter binary contracts that can hedge tail risks across multiple assets.
It's an all-or-nothing play: in exchange for a premium, the trade either returns 100% or nothing. While critics say it's more akin to betting on a sporting event than traditional options trading, the reality is that such a binary payoff is extremely useful to investors focused on hitting target returns within strict risk limits.
«Cross-asset dual binary option trades have picked up around event risk this year,» said Herve Guyon, head of flow strategy and solutions at Societe Generale.
While judging the size of the market is difficult given all trades are over the counter with multiple counterparts, estimates for the premium spent in 2024 on such structures run from several hundred million to a billion dollars.
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