In this post, I cover parlays, zero day options, and perpetuals: seemingly obscure products that have exploded in adoption to reach mainstream people.
$150 billion was wagered on sports in 2024. Parlays contribute to two-thirds of sportsbook revenue and to the significant increase in hold, which is sportsbooks’ profit margin on all bets. Sportsbook hold has doubled from 6% when parlays were just introduced to over 12% today.
Parlays allow players to place a small bet for life-changing upside. But each leg of the parlay must be won for the player to win the bet, which drastically shrinks the odds. You would have a far higher probability of winning money if you placed all bets individually rather than placing a single parlay bet, but then the user has to click through and submit individual bets and won’t receive lottery-like upside. A parlay bet triggers a bigger rush.
Zero day options are short-term options contracts that expire within the same day. They were first introduced by the CBOE in 2005 but limited trading to once a week on Fridays. It was only in 2022 that trading expanded to all five trading days, which unleashed a massive boom in short dated options trading.
Post COVID, there was a massive boom in retail participation in the stock market: 30 million new brokerage accounts were opened in 2020 and 2021. This is more than double the total number of new brokerage accounts opened the decade prior. Retail consumers love zero day options, and brokerages like Robinhood love them more. Options were 26% of Robinhood’s revenue in 2024 with an implied gross margin of over 90%.
Perpetuals, or perps, are futures contracts with no expiry dates. They were originally designed by Nobel laureate Robert Shiller in the early 1990s to enable traders to hedge against long term economic risks like housing prices or economic growth. Little did he know how degenerately they would be used a few decades later.
Perps had minimal adoption until 2016, when the crypto exchange BitMEX introduced perps. Crypto made perps viable because it enabled 24/7 trading, so funding payments could run continuously. It required no physical delivery and it operated in a regulatory grey zone, side stepping CFTC constraints. But the most important reason for the growth was that crypto markets are highly volatile with high retail demand for leveraged exposure.
Robinhood launched their crypto perps product for European customers. Perps are going mainstream, and they are soon going to be accessible to every retail customer to trade crypto assets with 20-100x leverage. Or as Gwart more eloquently put it:
Sports betting adoption didn’t take off until FanDuel designed a lottery inside it. The most important invention in modern betting is the same game parlay: a single bet that combines multiple independent bets within the same game. Parlays transformed the user experience for casual sports fans. Now, fans can achieve lottery-style outcomes within a few hours of a sports game by betting something as small as five dollars to win a thousand dollars. They can craft a story behind the bet, giving them the perception of skill. When Dallas Mavericks owner Mark Cuban said that Russel Westbrook was not a super star, a sports fan could build a parlay around his revenge: Westbrook will answer the insult by scoring over thirty five points, have at least ten assists, and take his team to victory. Sports is reality TV for men; parlays keep them glued to their screens because now they have a stake in the outcome.
Zero day options rose from 5% of total options volume in 2016 to 61% by May 2025. Retail share of zero day options volume is a staggering 54%. Zero day options have low premiums and provide a lottery-like payoff since small moves in the underlying asset produce outsized P&L. You can also tie your bet to specific catalysts or events, which are easy to digest on social media. Speculation on whether “Trump will announce a new round of tariffs on China” or “Powell will cut rates” can help people craft a story on why their lottery ticket is a sound investment.
Technically, perps do not offer a lottery-like convex payoff, i.e. a small fixed cost for a chance at a huge windfall. Perps have linear payoffs: if the price of the asset rises 10% and you’re long with 10x leverage, your P&L is +100%; if it falls 10%, you’re liquidated (–100%). However, perps offer leverage up to 125x depending on the exchange. When you combine leverage with highly volatile underlying assets like crypto tokens, the distribution of outcomes ends up being lottery-shaped: most positions end in small losses or liquidations, a few end in abnormal gains.
We will see many more companies build a lottery-like experience into their product. Prediction markets, for example, may introduce perpetuals to trade bets with leverage or parlays that combine multiple predictions into a single bet. For a small amount of money but potentially massive upside, a user can bet that Mamdani will win the NYC mayoral election, the US will have a recesion, and the Fed cuts will cut rates by 25 bps. An even crazier idea for credit card points: invest a user’s credit card points into zero day options and randomly distribute a lottery-style winning of an enormous amount of points to a select few users. The world is getting stranger.
I had an absolutely disgusting thought today: Robinhood should offer parlays. Sell customers a call option on multiple assets. For example a call option to buy Apple at $250, NVDA at $190, GameStop at $25 and Bitcoin at $120k, but only if ALL of them are in the money. Robinhood could buy offsetting calls on each individual asset, then sell the parlay “bundle” to retail. Risk-free profit for Robinhood, and their customers would love it.
South Korea is streaming live perps trading like it’s an esports competition.
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