For a long time, we’ve heard from traders in our community about the desire and need to trade options in SPX. Truth be told, we’d love to trade SPX alongside each of you here and take advantage of all the benefits like cash settlement, 60/40 tax treatment, etc. If we could snap our fingers and make it happen, we would do it in a heartbeat.
However, there's one peculiar aspect, unique to SPX, that's been a thorn in everyone’s side: the non-standard, minimum bid increments for options contracts. While all other ticker symbols operate on “penny increments” of $0.01, the non-standard SPX bid increments starting at $0.05 is a relic of the past, and it's high time we, as a community, advocate for change that helps retail traders like us.
Together, We Can Make A Difference
Options trading has always been about finding the right opportunities, including the opportunity to improve the market for all traders. We feel strongly that if we unite as a community and petition for change, we can make SPX options more accessible, inclusive, and aligned with the modern retail trading environment. Let's make this change together, one signature at a time. The good news is that the CBOE listens to traders and has a long history of sponsoring events and supporting options education programs throughout the industry. They have been specifically gracious with their time to discuss the SPX bid increment with the Option Alpha team on multiple occasions. If enough voices are brought together, we can bring about the change we want to see in the SPX options market.
How Does SPX Bid Increments Work?
If you're an options trader, you're likely already aware of the frustration with SPX options. While all other tickers follow a $0.01 minimum bid increment (i.e., SPY options can move in pricing from, say, $1.23 to $1.24), SPX continues to operate with a $0.05 minimum bid requirement for options priced under $3.00 and a $0.10 minimum bid increment for all other series. This means an SPX options contract bid increments move in “blocks” of $0.05 prices at a time, going from $1.20 to $1.25 or $2.30 to $2.35.
It's like trying to fit a square peg into a round hole, and it doesn't align with any other tickers or the modern, fast-paced world of trading that we are pioneering together.
Accessibility Matters & Would Drive More Liquidity
The “talking point” that SPX is one of the most liquid products traded often acts as a mask that covers the true reality. First, the SPX contracts are already high priced, naturally driving smaller retail traders like us out of the market. Second, should someone want to trade SPX, knowing they can’t do it at scale like large funds, the $0.05 minimum increment creates another barrier for smaller traders, effectively pricing them out of SPX options trading. We’ve heard time and again that traders want to trade SPX. Still, they’re afraid that the large contract size coupled with the higher $0.05 minimum bid increments will create a situation that handicaps them from effectively managing risk at a smaller scale when markets are moving fast. We believe that premier products, like SPX, should be accessible to traders of all sizes, and it would drive more liquidity collectively from the wave of retail traders.
XSP Isn’t Mature Enough To Be A Solution
When the CBOE introduced XSP, the "mini" version of SPX, with a $0.01 minimum increment, we all thought it would be the answer to our prayers. We’re thrilled to now offer XSP for autotrading, giving traders access to index options. And while the CBOE’s heart was in the right place, trying to release a product that addresses the size and bid increment issues of SPX for retail traders, it ultimately hasn’t reached the level of liquidity and versatility that the original SPX options offer. During multiple discussions with the CBOE team, we’ve been told there’s a concerted push to increase the liquidity for XSP and regain some much-needed traction. But to date, it’s still nowhere close to meeting the needs of traders. Instead, the path of least resistance would be to reduce the minimum bid increments on SPX and open it up to modern trading platforms used by many retail traders.
Non-Standard Bid Increments Introduce Unique Technical Hurdles
Option Alpha’s automated Smart Pricing order submission and real-time position management technology operate in industry-standard penny increments. We'd have to split the code with completely custom implementations for all of these features, specifically for SPX, in order to handle custom pricing rules. This slows the development of new features and introduces the potential for difficult-to-track bugs. It would also handicap what we can do in the future, and we’d all suffer due to these antiquated rules. We aren't willing to make that commitment at Option Alpha, and we imagine other modern trading software providers have left out SPX for similar reasons (e.g., Robinhood).
Let’s Come Together to Change SPX
So, how can we make this change happen? It starts with all of us, the options trading community, joining forces as one voice. To help facilitate this, we've created a petition addressed to the CBOE, urging them to reconsider and lower the minimum bid increment for SPX options to $0.01.
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Your signature is a powerful tool in this collective effort. By adding your name to the petition, you're sending a clear message to the CBOE that we all want to trade SPX, but we first need to modernize and adapt SPX options trading to meet the needs and expectations of today's traders.
Help Spread This Message - We Need All Traders
There may not be many certainties in trading, but there is one certainty for this petition: if the CBOE believes that changing the SPX bid increments is only coming from a “small” set of traders, nothing will happen. Together as options traders, we all need to get behind this if we’re going to succeed. So, please tell your trading buddies, post about it on forums and blogs, email your friends, and send it to everyone you know who trades options. It’s a change that is good for everyone.