SPX Options vs. SPY Options

Know the key differences before trading these index options

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When using options to invest in the S&P 500 Index, you can trade an index with the ticker SPX or an exchange-traded fund (ETF) with the ticker SPY. These options are ideal for trading because both are very liquid with high trading volume, making it easy to enter into and exit a position.

Defining SPX

SPX, or the S&P 500 Index, is a stock index based on the 500 largest companies listed on the New York Stock Exchange (NYSE) and Nasdaq. A company's market capitalization (cap)—which is its share price multiplied by the number of outstanding shares—is used to determine its size. Unlike the Dow Jones Industrial Average, an index composed of an equal number of shares (adjusted for stock splits) of each of the 30 companies, SPX is a capitalization-weighted index.

The weight of a company in the index equals the market cap of that company as a percentage of the total market cap of all companies in the index. For example, if an index has a total market cap of $100 billion and one company has a market cap of $1 billion, its weight would be 1%. The underlying asset itself does not trade, and it has no shares available to be bought or sold. SPX functions as a theoretical index with a price calculated as if it were a true portfolio with exactly the correct number of shares of each of the 500 stocks. So while the SPX itself may not trade, both futures contracts and options certainly do.

The market capitalization of most stocks changes daily, so the list of the 500 specific stocks in the index is rebalanced quarterly in March, June, September, and December.

Defining SPY

SPY is the ticker symbol for the SPDR S&P 500 ETF. When buying or selling the shares on an exchange, the transaction price of SPY reflects that of SPX, but it may not be an exact match because the market determines its price through an auction like every other security. An SPX option is also about 10 times the value of an SPY option, so while they're similar, they may not line up exactly. For example, on April 9, 2020, SPX closed at 2,789.82 points, and SPY closed at $278.20.

The SPY portfolio seeks to provide investment results that mimic the price and yield performance (before expenses) of the S&P 500 Index. SPY pays a quarterly dividend, which is important because traders with in-the-money (ITM) call options often exercise them so that they can collect the dividend.

SPX vs. SPY: Key Differences

Dividends None Quarterly
Style European-style option American-style option
Ceases Trading Differs for those that expire on the third Friday of the month At close of business on expiration Friday
Settlement Settled in cash Settled in shares

One key difference is SPY pays a quarterly dividend, while SPX does not.  Ex-dividend day—the date a stock's buyer no longer has the right to receive the last declared dividend—usually takes place on the third Friday of March, June, September, and December, which also corresponds with expiration day. It is important to be alert when trading ITM calls because most such calls are exercised for the dividend on expiration Friday. If you own such options, you cannot afford to lose the dividend and must know how to decide whether or not to exercise. Since SPX doesn't pay dividends, it's not an issue.

SPY options are American style and may be exercised at any time after the trader buys them before they expire. SPX options are European style and can be exercised only at expiration. With the different styles, trading ceases at different times. SPY options cease trading at the close of business on expiration Friday, but SPX options are a bit more complicated.

All SPX options, except for those that expire on the third Friday of the month, expire like SPY options—at the close of business on expiration Friday. SPX options that expire on the third Friday stop trading the day before the third Friday. On the third Friday, the settlement price, or closing price for the expiration cycle, is determined by the opening prices of each of the index's stocks.

SPX Options vs. SPY Options

It's important to understand that one SPX option with the same strike price and expiration equals approximately 10 times the value of one SPY option. Each SPX point equals $100. For example, let's say SPX was at 2,660 points, and SPY traded near $266. One at-the-money SPX option gives its owner the right to buy $266,000 worth of the underlying asset ($100 x 2,660). One SPY option gives its owner the right to buy $26,600 worth of ETF shares (10% of $266,000).  

If you trade a lot of options at one time, it might make more sense to simply trade five SPX options rather than 50 SPY options. That plan could save significant dollars in commissions. However, it also means trading European options and trading an underlying asset with no dividend, which won't necessarily be suitable for every trader.

The Balance does not provide tax, investment, or financial services and advice. The information is being presented without consideration of the investment objectives, risk tolerance, or financial circumstances of any specific investor and might not be suitable for all investors. Past performance is not indicative of future results. Investing involves risk, including the possible loss of principal.