The Difference Between SPX and SPY – Options Trading

When looking to invest in the S&P 500, SPX and SPY options are similar assets with a high trading volume that investors can use to enter, and exit, a position in the S&P 500 index.

SPX and SPY options are great tools investors can use to profit off directional moves in the S&P 500. By reading this article, investors will understand the key differences between SPY and SPX options and how each can be used to generate a profit in their investing portfolio.

The SPX, or the Standard & Poor’s 500 Index, is a stock index that is comprised of the 500 largest U.S. publicly traded companies by market capitalization, or the stock price multiplied by the number of shares it has outstanding.

The SPY is an exchange-traded fund (ETF) that tracks the performance of the S&P 500. An ETF is a marketable security that acts like an index fund but is tradable like a common stock on a stock exchange.

There are key differences between SPX and SPY options. Let’s look at these differences so investors can decide which option fits their investing strategy best.

SPX options are European-style options and can only be exercised on the expiration date. SPY options are American-style options and can be exercised anytime between the time of purchase and the expiration date.

SPX options do not pay dividends whereas SPY options do. SPY options dividends are paid quarterly, usually at the options expiration in March, June, September, and December.

SPX options are settled in cash since the underlying asset itself is not traded. SPY options are settled in shares since the underlying asset itself is traded on exchanges.

All SPX options, except for those that expire on the 3^rd Friday of the month, expire at the close of business on expiration Friday. SPX options that expire on the 3^rd Friday stop trading the day before the 3^rd Friday. All SPY options expire at the close of business on expiration Friday.

An SPX option with the same strike price and expiration date as an SPY option is approximately 10 times the value of an SPY option. For example, if an SPX option was trading at $1,000, then an SPY option would trade for $100.

The SPX and SPY options are great tools to use when an investor wants to profit off an increase or decrease in the S&P 500 index. Choosing between the SPX and the SPY option is entirely up to the investor to decide which option fits their investing strategy best.