"All in or all out" style of trading in the US stock market: Predicting that the market is turning complex trading into a national game.

The traditional way of betting on the trends of the S&P 500 index is to buy call or put options in the options market that are linked to a predetermined exercise price. However, a new option is emerging: investors can now use event contracts on platforms like Kalshi or Polymarket to make "all-or-nothing" bets on whether individual stocks or indices will reach specific levels, allowing even novice investors to participate. "This method simplifies complex operations to a level that everyone can understand, eliminating the fear and difficulty that the market brings to people," said fund manager Danny Moses, famous for the movie "The Big Short," who promoted the Kalshi platform on his podcast. "But then again, you have to carefully read the rules and understand what you are trading." For a long time, the focus of predicting markets has been on sports, elections, and political events like the GEO Group Inc. Recently, these platforms have launched contracts linked to stock prices and key index levels, with trading volumes continuing to rise. The mechanism of operation is very simple: traders buy contracts for $1 each, and if a contract is selling for 4 cents, it means the market believes there is a 4% probability of the event happening. On Wednesday, the price of a contract predicting that the S&P 500 index will end the year in the 8000-8200 range on the Kalshi platform was exactly 4 cents - a bet of $2190, with potential winnings close to $44,000. In the traditional options market, if you buy a call spread option at 8000/8200 with a premium of $2190, you will only profit if the index surpasses the lower limit of the target range. The potential maximum profit for a single contract is about $20,000, and investors need to consider complex factors such as volatility, time decay, etc., affecting daily profit and loss. In comparison, the former operation is more simple and intuitive, making it very attractive to many retail traders. The future direction of this market will largely depend on regulatory attitudes. Kalshi's contracts are regulated by the U.S. Commodity Futures Trading Commission (CFTC), while Polymarket, which operates mainly overseas, is not subject to U.S. regulatory constraints. However, the addition of stock market-related bets on such platforms may attract the attention of the U.S. Securities and Exchange Commission (SEC). Currently, it is not clear which regulatory authority these products belong to, causing some market participants to worry, especially as Kalshi's related products are already officially trading. Craig Donohue, CEO of Cboe Global Markets Inc, was straightforward at a roundtable event hosted by the two regulatory agencies last September: "From both a legal definition and an economic substance perspective, products like these should be considered securities and listed for trading on exchanges regulated by the SEC." These platforms are also under scrutiny for other issues, including allegations of insider trading, the legality of military action contracts, etc. Several states in the U.S. have filed lawsuits against these platforms, defining them as illegal gambling entities. As of now, the volume of such prediction markets is relatively small. Since the end of December last year, Kalshi users have traded over $1 million in bets on the year-end position of the S&P 500; whereas in the traditional options market, the nominal trading volume of S&P 500 options expiring on December 31st exceeds $100 million daily. However, the trend of integration between prediction markets and traditional options markets is already evident. Mainstream exchanges like Nasdaq, CME Group Inc. Class A, Cboe Global Markets Inc., etc., have introduced binary betting products for events related to indices and financial markets, which in itself is recognition of the popularity of this model. Stuart Kaiser, Head of Equity Trading Strategy at Citi U.S., said that investment institutions are also beginning to show interest. "I have noticed that some clients are actively looking at prediction markets, with an attitude similar to when they were exploring cryptocurrency assets: with some caution," he said. "The core issue is market depth. If you manage tens of billions of dollars in a hedge fund, how much trading can you really do in the prediction market?" Although prediction markets may not be comparable to options markets in terms of depth and liquidity, the probability forecasts obtained by both may be very close. In mid-February, Kalshi contracts showed a 6% probability of the S&P 500 ending the year at 8000-8200 points; and according to Kaiser's provided quotes at the time, the off-exchange derivatives market gave a probability of about 7%. Supporters of prediction markets believe that the close probability is a manifestation of collective wisdom: the collective judgment of ordinary retail traders is not much different from the professional models built by doctoral teams. However, prediction markets are no longer just a game for retail traders. Market makers servicing top trading desks also influence the pricing of prediction markets. For example, Susquehanna International Group, a major player in the listed options market with a daily trading volume of $4 trillion, also provides liquidity to Kalshi. Vuk Vukovic, Chief Investment Officer of hedge fund Oraclum Capital, said: "The similarity between Kalshi prices and listed options trends shows that its pricing system has consistency and institutional funds are maintaining reasonable prices." Some industry insiders believe that, compared to mature tools, prediction markets are more clumsy when betting on target levels. Marko Papic, Chief Strategist at BCA Research, bluntly said, "Just trade the S&P 500 directly." He described betting on the index using prediction markets as "like having a girl sitting in front of you on a date, but you insist on calling her to go out unnecessarily."