By Krystal Hur

Individual investors who embraced high-risk, high-reward stock bets in recent years are now flocking to prediction markets.

For the cohort that piled into options -- which give the right to buy or sell a stock at a set price, in a certain time frame -- prediction platforms such as Kalshi and Polymarket offer a vast range of wagers, in a "yes or no" format.

That makes prediction markets easier to navigate than the options market for certain kinds of bets, said Andrew Courtney, a former Susquehanna International Group trader who writes a Substack about prediction markets.

For example, an options trader who wants to wager that the unemployment rate in February's jobs report will be above a certain percentage would need to decide on stocks or assets to hinge that bet on, determine how those prices might move in a given time, and then decide whether to exercise or trade the options.

On Kalshi, the same individual could look up "Unemployment in February" and purchase "yes" or "no" contracts for set choices such as "above 4.2%" and "above 4.4%." That bet would be resolved shortly after the release of the jobs report on Mar. 6.

"It's very easy to understand these binary probabilities -- is this event going to happen or isn't it?" Courtney said.

Some prediction bets mimic traditional derivatives found on Wall Street. For example, instead of betting on a rise in Nvidia shares this month by purchasing call options, a trader could go on Polymarket and buy contracts for "What will Nvidia (NVDA) hit in February 2026?"

There are a lot of questions that aren't standard financial instruments, from "Who Will Win Survivor Season 50" to "Will Paramount Acquire Warner Bros?" to "What will Trump say this week?" (Among the choices are "Sleepy Joe" and "Hottest Nation.") Polymarket has a data partnership with Dow Jones, the publisher of The Wall Street Journal.

Critics of prediction markets say the binary nature of the wagers is risky and akin to gambling. Traders pay a certain amount for each contract on a particular question -- say, 63 cents -- and if they are successful they are paid $1 for each contract. They lose 100% of their wager if they pick the wrong outcome. In options trading, there are gradients of success.

Zach Powers, a partner at an insurance brokerage firm in Chicago, said that he began trading in prediction markets two months ago. He said he made a profit by correctly betting that the Federal Reserve would hold rates steady in January, and has also profited from bets on where the price of bitcoin will go.

Powers said that while he has traded options before, including zero-day contracts that expire by the day's end, he prefers prediction markets because he finds them more straightforward.

"I don't trade on something I don't have serious research on," said Powers. "A lot of people say, 'no, this is gambling,' but I believe it's just an organized system of telling the truth."

Regulated U.S. prediction markets are overseen by the Commodity Futures Trading Commission, which can ban certain contracts they deem against public interest, such as those involving war, assassination or illegal activities.

Kalshi is in the middle of a court battle in Nevada, which is arguing that it is a gambling platform and should acquire the appropriate licenses in the state. The company says the services it offers are distinct from online betting. The case is pending at a federal appeals court.

Key players in the options industry are looking to adapt to the wave of interest in prediction markets. Exchange operator Cboe Global Markets is looking into launching "all-or-nothing" options. Those could include binary contracts that allow investors to make simple yes or no wagers on future events, such as whether the S&P 500 will close below or above a certain level. Like prediction-markets contracts, they would either pay a set cash settlement, or nothing at all.

"What we've seen happen in prediction markets, it's led to a natural demand for a way for people to participate in a regulated environment," said JJ Kinahan, head of retail expansion and alternative investment products at Cboe Global Markets.

Retail brokerages are also jumping in. Investing platform Webull last year launched contracts tied to bitcoin prices and economic reports and recently made a foray into popular culture, listing contracts tied to the Oscars and Grammys. Anthony Denier, the company's U.S. chief executive, said the offerings have proved popular.

Users who trade short-dated options in particular, or boom-and-bust options that expire in just days or even hours, have taken to prediction markets, he said. "They're both full-speculation trades," Denier said. "These prediction markets give them a low cost [and] easy access."

Write to Krystal Hur at krystal.hur@wsj.com

(END) Dow Jones Newswires

February 19, 2026 13:00 ET (18:00 GMT)

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