In 2017 the average daily volume for the S&P 500® Weekly options (SPXW) rose to a record 523,170 contracts (35% above the 2016 figure). The year 2017 was the tenth year in a row that the SPXW Weekly options set a new volume record.
SPXW Weekly options provide many expiration opportunities, affording investors the ability to implement more targeted buying, selling and spreading strategies. SPXW options may help investors to more efficiently take advantage of major market events, such as earnings, government reports and Fed announcements.
IMPLIED VOLATILITY AND MANY EXPIRATIONS
The S&P 500 options skew chart below (from Cboe Livevol) shows that --
- There are 18 upcoming expiration dates for S&P 500 options in January and February; and
- The implied volatility estimates for S&P 500 options ranged from around 5 to more than 28, depending on the strike price and expiration.
Key Features of SPXW Weekly Options (Friday, Wednesday and Monday) include:
- HYBRID TRADING SYSTEM FOR TRADING FLEXIBILITY
- SPX Weeklys are available on Cboe's Hybrid® Trading System , which incorporates electronic and open-outcry trading in order to enable investors to choose their trading method.
- Aligns with single-stock options and ETF options and with S&P 500 options traded OTC.
- Preferred by many investors including those with end-of-day reporting needs.
- The ability to trade in and out of positions on settlement day.
- LARGE CONTRACT SIZE WITH A $100 MULTIPLIER
- If the S&P 500 Index is at 2500, SPX Weeklys options have a notional size of about $250,000 (ten times larger than SPY options).
- CASH-SETTLEMENT, EUROPEAN-STYLE EXERCISE
- Like SPX and most other index options, and unlike SPY and other ETF options.
- No risk of early assignment and loss of dividends, no portfolio disruption on assignment.
- Cboe Regulatory Circular RG15-183 notes that Cboe rules allow a short position in a cash-settled-index option established and carried in a margin account to receive covered margin treatment, if the short option position is offset in the same account by an equivalent position in an index-tracking ETF that is based on the same index that underlies the short option(s).
In order to receive covered margin treatment, the market value of the offsetting ETF position must be equivalent or exceed the current aggregate index value of the option being covered. One should note that not all ETFs are managed so as to maintain a share price that is a constant fraction (e.g., 1/10 th, 1/100 th, 1/1,000th, etc.) of the index being tracked.
- TAX TREATMENT
- Under section 1256 of the Tax Code, profit and loss on transactions in certain exchange-traded options, including the S&P 500 options, are entitled to be taxed at a rate equal to 60% long-term and 40% short-term capital gain or loss, provided that the investor involved and the strategy employed satisfy the criteria of the Tax Code. Investors should consult with their tax advisors to determine how the profit and loss on any particular option strategy will be taxed. Tax laws and regulations change from time to time and may be subject to varying interpretations.
To learn more about how S&P 500 Weekly options (SPXW) can provide more flexibility for targeted strategies, please visit www.cboe.com/SPXW.
- A link to an academic analysis and comparison of writing one-week and one-month S&P 500 options is here -- Bondarenko. An Analysis of Index Option Writing with Monthly and Weekly Rollover.
- Cboe's Risk Management Conferences (RMC) provide opportunities to engage in networking and learn more about how index products can be used in your portfolio management strategies. Upcoming RMC's include: