Points of View
The human condition has evolved and improved through time because we’re able to express a point of view and grapple with counterfactuals. From cave drawings to ancient Greek philosophers, mythology to mass media, from Reddit boards to capital markets, we express views.
Just over a century ago, Justice Oliver Wendell Holmes Jr. defended the importance of free speech as elevating the best ideas through debate. In other words, the “marketplace of ideas” promotes truth via competition.
At a very basic level, we value the question, “What do you think?”
A Market that Asks, “What Do You Think?”
In early March, Nasdaq filed with the Securities and Exchange Commission (SEC) to list Outcome-Related Options (OROs). Subject to regulatory approval, these contracts would give investors a defined-risk, outcome-based way to express a view on the Nasdaq-100 Index® (NDX®).
The marketplace of ideas continues to expand. There’s clear demand for more accessible markets and Nasdaq looks to meet the expanding investor class where they are.
For example, will NDX close above 25,000 on March 20, 2025?
- Call: $0.55
- Put: $0.44
(NDX reference: 25,080)
Why NDX?
NDX is a globally recognized index that includes 100 of the most innovative large cap companies in the world. In the four decades since the measure was introduced, a thriving ecosystem matured around the index.
Today, there are a variety of exchange traded funds (ETFs), including the $400 billion (AUM) QQQ, that provide investors with NDX exposure. There are also mutual funds linked to NDX. In the insurance world, clients use fixed, variable, and registered indexed annuities. Other firms offer structured products with NDX as the reference asset.
NDX futures average roughly $250 billion in notional value traded daily. On the cash-settled option side of the ledger, NDX volumes have grown by 345% on a quarterly basis since late 2022. That compares to ~68% growth for other equity index options over the same time frame.
Source: Nasdaq, ChartR
There’s clear appetite for NDX exposure from a growing cohort of investors and traders.
Access and Learn…
Growing access by way of smaller contract sizes, improved technology, and increased education have been key drivers of industry expansion. Outcome-Related Options may reduce complexity and further understanding.
Many view these tools as a more approachable, risk-defined means for the modern investor to enter derivative markets.
Complexity and risk are meaningful hurdles for many prospective market participants. Using products you don’t understand or risking capital you can’t afford to lose should always be avoided.
OROs are a simpler and risk-accessible means by which to express a view on a trusted benchmark like the NDX. OROs differ from alternatives like Nasdaq-100 Index® Options (NDX® and XND®) in a few important ways.
Traditional NDX options are priced with embedded assumptions about volatility or the magnitude of the move in the underlying index. Those features, which amplify the potential gains or losses in the index options, can be beneficial when fully understood. As with anything, a comprehensive understanding takes time and effort.
Nasdaq-100 Index® Outcome-Related Options focus on whether a specific outcome occurs, not on the size of the move. In that sense, they are more intuitive and offer an alternative entry point.
…Advance
If approved, OROs will likely be viewed as a complementary tool and a gateway to listed options markets — a return to fundamentals. In ancient Greece, Socrates emphasized critical questioning, now known as the Socratic Method. Plato was his student and went on to develop his “theory of ideas,” now known as Platonic Realism. Aristotle studied under Plato and advanced empirical observation and logic, now known as Aristotle’s Ethics.
These ideas continue to influence modern thinking and science. Each of them began with a question, “What do you think?”
They would strip concepts down to core tenets and build up from that foundation.
A primary question derivative markets can answer – what is the probability of a given outcome over a specific time window? Assuming approval, Nasdaq’s Outcome-Related Options aim to provide further insight into those dynamic probabilities.
So, what do you think?
Latest articles
This data feed is not available at this time.
Data is currently not available