As global markets face volatility driven by elections, central-bank policy shifts, and geopolitical tensions, hedge funds are increasingly investing in binary options — a high-risk, all-or-nothing strategy offering pre-determined payouts for accurate bets, according to a report by Bloomberg.

While retail traders and systematic funds often favour zero-day-to-expiry options, institutional investors are turning to over-the-counter (OTC) binary contracts – derivatives which are designed to hedge extreme market risks across multiple asset classes, have surged in popularity.

Binary contracts promise a fixed payout if specific conditions are met, but yield nothing if they are not. Critics liken these trades to gambling due to their rigid structure, but proponents argue that they provide a targeted way to achieve returns within strict risk constraints.

While precise market data is hard to gauge due to the OTC nature of these trades, analysts estimate that premiums spent on binary contracts in 2024 range from several hundred million to $1bn.

Major global events have underscored the utility of binary options this year. From US, European, and Indian elections to "live" Federal Reserve meetings, an active Bank of Japan, and escalating geopolitical tensions involving Ukraine, Iran, and Israel, markets have faced continuous disruption.

The US presidential election was particularly influential. While US stocks rallied post-election on optimism about Donald Trump’s market-friendly policies, his administration’s tougher stance on tariffs sparked concerns in Europe and China about potential profit erosion for multinational firms.

“The chase for upside after election uncertainty has driven elevated call skews across US indexes,” said Tanvir Sandhu, chief derivatives strategist at Bloomberg Intelligence. “In Europe, tariff risks have heightened interest in hybrid options, such as those tied to equity and currency movements.