Everything you expect from S&P 500 ETF options
Same notional size. Weekly contracts. PM-settled. Liquidity.
With additional benefits of S&P index options
- Potentially better tax treatment
- If you're an active trader, you work hard to generate profits in your trading account. You study the charts, you watch the day's headlines, and research your entry and exit points before placing an order. If things go your way, you end up with a winning trade in your account. But if you're using a broad-market ETF to trade options on the S&P 500®, you may be paying more in taxes than you would by using index options. That means you may be giving up more of your hard-earned trading profits.
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- Cash settlement vs. share settlement
- Options may be "cash settled" or "physically delivered." All equity (single stock) and ETF options physically deliver when exercised or assigned. In other words, at expiration, in-the-money options are exchanged for shares in the underlying security (equity or ETF). SPY ETF options expire into a long or short position in the ETF product. Index options, like Mini-SPX, are cash settled. This key difference is particularly important when we talk about "gap risk."
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- No worries of early exercise
- Many trading strategies, such as covered-call or spread trading, involve options writing (selling) where the primary risks are market movement and volatility. But there's another risk if you happen to be writing options on dividend-paying equities like SPY ETFs—early assignment. Don't get stuck paying the dividend on your short trade.
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Why choose Mini-S&P 500 index options over ETF options?
Cboe Mini-SPX (XSP) is an index option product designed to track the S&P 500. At 1/10th the size of the standard SPX options contract, XSP is the same notional size as S&P 500 ETF options, but with the added benefits of:
- Cash settlement
- No early exercise
- May qualify for 60/40 blended tax treatment