{"id":662,"date":"2026-08-04T07:47:00","date_gmt":"2026-08-04T14:47:00","guid":{"rendered":"https:\/\/quantcha.com\/news\/?p=662"},"modified":"2026-08-03T21:35:09","modified_gmt":"2026-08-04T04:35:09","slug":"post-earnings-price-level-prediction-markets-are-coming-sooni-hope","status":"publish","type":"post","link":"https:\/\/quantcha.com\/news\/post-earnings-price-level-prediction-markets-are-coming-sooni-hope\/","title":{"rendered":"Post-Earnings Price Level Prediction Markets Are Coming Soon\u2026I Hope"},"content":{"rendered":"\n

We need an accessible market sentiment alternative to Black-Scholes for earnings jumps.<\/em><\/p>\n\n\n\n

I\u2019ve been writing a lot about the potential for real crossover between binary prediction markets and traditional vanilla options. It\u2019s mostly been about the emerging AI compute stack, from the options story<\/a> through the crash it could defuse<\/a> to a full derivatives stack priced off the ladder<\/a>. This week I want to take one of the concepts from the AI compute discussion and apply it back to the world of equities: using a binary ladder as a better implied price distribution.<\/p>\n\n\n\n

Let\u2019s look at SpaceX, which reports earnings after today\u2019s close for the first time ever. The at-the-money straddle that week runs about $20 on a $114 stock, so it\u2019s pricing a move of ~17% by Friday. This number\u2014the implied move\u2014is quoted everywhere and is the basis for how many people trade the stock and its options.<\/p>\n\n\n\n

Before I forget: I\u2019m talking about earnings prediction markets, but I\u2019m not talking about \u201cearnings prediction markets\u201d. Unfortunately, that term has lost all credibility as mention markets for people to gamble on what execs will say during the call. I\u2019m talking about them in terms of a price ladder for the Friday evening immediately after a company\u2019s earnings call.<\/p>\n\n\n\n

The key place Black-Scholes breaks<\/strong><\/h1>\n\n\n\n

I\u2019m a believer in Black-Scholes, especially for longer-dated options. We need a standard way everyone can generally agree is fair for estimating the expected value of an option at expiration, and BS works well enough to keep the wheels turning. However, it assumes the underlying diffuses in small steps, which isn\u2019t the case around major events like earnings releases. Then it extrapolates with a distribution that peaks at a near-zero move and hands you a fat, ordinary-looking probability of a near-flat finish, on the one night a first-ever print should be anything but ordinary.<\/p>\n\n\n\n

\"\"
Figure 1. Three ways of reading the same option chain, a single-vol lognormal, the full smile, and a two-node mixture, all land on one smooth hump. One surface, no second opinion.<\/em><\/figcaption><\/figure>\n\n\n\n

Every way I read this market lands on the same curve. Single-vol model, full smile, a flexible two-node fit, all of them collapse onto one hump, because they are all the same surface. That\u2019s not confirmation; it\u2019s monoculture. Whether the agreed shape is right is a question the market can\u2019t answer today because there is only one instrument and it agrees with itself.<\/strong><\/p>\n\n\n\n

What the single number hides<\/strong><\/h1>\n\n\n\n

The Breeden-Litzenberger method enables us to extract a probability distribution from an options chain. It\u2019s not using a model, but rather pricing call spreads to infer the implied probability for each strike range. However, the prices are still fairly tightly bound to the IV-driven model, so they only offer a limited amount of extra wiggle to tease out more specific expectations.<\/p>\n\n\n\n

Here\u2019s what the chain is actually pricing for SpaceX\u2019s earnings week the night before.<\/p>\n\n\n\n

\"\"
Figure 2. The option-implied distribution for SpaceX\u2019s Aug 7 weekly, binned like a ladder. Odds of finishing in each $5 band, read from listed call spreads. As of the Aug 3 close, spot $114.53.<\/em><\/figcaption><\/figure>\n\n\n\n

This data shows there\u2019s about one chance in five that the stock finishes within 5% of where it started. There\u2019s about two in five that it moves more than the whole $20 straddle. Its up-case centers near +18% and its down-case near \u221220%, with tails past +38% and \u221234%. There\u2019s a quiet lean to the downside, 57\/43, that the symmetric \u201c+\/-17%\u201d cannot express. That shape is the thing traders are actually working with. A single implied volatility (or implied move) number throws almost all of it away.<\/p>\n\n\n\n

But let\u2019s actually dig into these numbers. Do you really believe there\u2019s a one-in-five chance this stock barely moves after its first-ever earnings call? How much money would you put behind the scenario where SpaceX, with its 185% IV and $20 implied move, closes within $6 of Monday\u2019s close by the end of its earnings week?<\/p>\n\n\n\n

The number\u2019s not wrong. It is what the volatility implies, and you could sell it if you wanted. The trouble is that the only way to fade it today is a complex options structure very few know how to trade, quoted by people all working inside the same framework. So it just sits there, simultaneously unbelievable and uncontested.<\/p>\n\n\n\n

Can\u2019t we just use options?<\/strong><\/h1>\n\n\n\n

You can already price any band as a tight call-spread or condor. Buy the 109 call, sell the 110, sell the 120, buy the 121, and off Monday\u2019s prices it costs about twenty cents to own the \u00b15% band. Twenty cents is<\/em> the probability. The number is already there. What\u2019s missing is a clean, accessible way for more people to trade those bands directly. Advanced shops already run multimodal models; this is about giving the broader market an independent, money-backed view instead of only the IV surface.<\/p>\n\n\n\n

An alternative way to express an earnings view<\/strong><\/h1>\n\n\n\n

So what would actually break the monoculture? A parallel ladder would give us the first independent measurement. Not a better model of the same prices, but a different crowd putting real money on where the stock lands, quoting the middle directly instead of inheriting it from a curve. If their prices disagree with the surface, that disagreement is information. And because the binary and the option chain live on the same stock, the arbitrage between them drags the surface toward the ladder. It doesn\u2019t just reveal the shape, it disciplines it. The catch is that this only works if the ladder draws its own informed flow. If the depth is purely driven by dealer quotes off the surface then all you have is the same data in a different view.<\/p>\n\n\n\n

Cboe has the parts, but\u2026<\/strong><\/h1>\n\n\n\n

Cboe already has the building blocks: call spread \u201cprediction markets\u201d, true binary The Plus Zone Minus\u2122<\/a>, and KPI binaries tied to specific stocks. None of them yet deliver a pure price ladder for individual equities after earnings. All I\u2019m asking for is to combine those pieces so the market can trade the binary odds of finishing in each price band.<\/p>\n\n\n\n

There\u2019s no guarantee of success<\/strong><\/h1>\n\n\n\n

While these earnings ladders could provide genuine insight into the expected distribution, it\u2019s not without risk. And to be clear, none of this suggests that options are mispriced. The claim is that the shape sits uncontested when there are likely participants who would object if given an easy way to do so.<\/p>\n\n\n\n

We still don\u2019t know if there\u2019s real demand for binaries among traditional finance, especially given how closely these instruments map to call spreads. Equity binaries have come and gone before, and the inescapable gravity of sports gambling may have made the class less appealing than it was last time around. Whether the appetite is different now is the open question, and I\u2019ve passed on binary derivatives before<\/a> for exactly these reasons.<\/p>\n\n\n\n

A parallel binary price ladder would give the market its first real second opinion on post-earnings distributions. And the arbitrage between the ladder and the options surface would force that surface to take the disagreement seriously. Would you trade these earnings price ladders? If so, would you use them to replace option strategies or as a complement?<\/p>\n","protected":false},"excerpt":{"rendered":"

We need an accessible market sentiment alternative to Black-Scholes for earnings jumps. I\u2019ve been writing a lot about the potential for real crossover between binary prediction markets and traditional vanilla options. It\u2019s mostly been about the emerging AI compute stack, from the options story through the crash it could defuse to a full derivatives stack … Continue reading “Post-Earnings Price Level Prediction Markets Are Coming Soon\u2026I Hope”<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":667,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[8],"tags":[],"_links":{"self":[{"href":"https:\/\/quantcha.com\/news\/wp-json\/wp\/v2\/posts\/662"}],"collection":[{"href":"https:\/\/quantcha.com\/news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/quantcha.com\/news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/quantcha.com\/news\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/quantcha.com\/news\/wp-json\/wp\/v2\/comments?post=662"}],"version-history":[{"count":1,"href":"https:\/\/quantcha.com\/news\/wp-json\/wp\/v2\/posts\/662\/revisions"}],"predecessor-version":[{"id":668,"href":"https:\/\/quantcha.com\/news\/wp-json\/wp\/v2\/posts\/662\/revisions\/668"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/quantcha.com\/news\/wp-json\/wp\/v2\/media\/667"}],"wp:attachment":[{"href":"https:\/\/quantcha.com\/news\/wp-json\/wp\/v2\/media?parent=662"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/quantcha.com\/news\/wp-json\/wp\/v2\/categories?post=662"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/quantcha.com\/news\/wp-json\/wp\/v2\/tags?post=662"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}