Understanding the differences may give an insight as to why we trade what we trade.
SPY has more volume but SPX has the value.
SPY is the SPDR S&P 500 exchange-traded fund (ETF), the most widely traded stock on the equity option exchanges. In normal times, over 100 million share a day are traded, less in the summer.
While the numbers of SPY options are much higher, the notional size of the SPX volume eclipses that of SPY. In fact, there is clearly much more money tied up in the index fund options.
SPY, as an ETF, is based on a single underlying, the SPY fund, but index funds are not. SPX is the index, which is the 500 stocks that compose the fund. Therefore, you cannot trade the underlying SPX to hedge options.
For this reason, the index fund is cash settled, vs. settled in the underlying shares with the ETF. If you end up ‘in the money’ SPX calls at expiration, you end up with cash, vs the stock with SPY.
With the shear size of the SPX, their options are about 10 times the size of SPY’s. For practical terms, if you trade heavy, you might want to consider SPX.
Also, although I am not a tax expert, you may want to consult your CPA concerning tax benefits to trading index options vs ETF’s.
are geared to retail traders mostly trading less than $100k, making SPY the preferred stock. SPX and SPY do behave similarly, so our programs should work for SPX as well.
Hugh W. Grossman, Head Trader at Day Trade SPY.
Hugh Grossman is the founder and Head Trader at DayTradeSPY and uses his vast experience to teach his methods to make consistent daily gains trading SPY options. Join Hugh in his interactive Trading Room to see how he regularly pulls in the profits!
Want to learn how to day trade SPY options? Join us in Hugh’s Trading Room – a program designed to fast track you to success. You will be able to watch Day Trade SPY traders, Hugh and Alex, daily in an interactive setting.
Still have questions? Book a free 30 mins personal chat with Hugh or Alex and find out if trading SPY options is right for you!