SPX vs SPY: How to Trade the S&P 500

The S&P 500 index consists of the 500 largest companies in the United States and is commonly used as the benchmark for the stock market. SPX and SPY are two tickers that give investors exposure to the S&P 500. While the symbols are similar, there are also some key differences that options traders should consider when deciding which to trade.

SPX Options

SPX (S&P 500 Options Index) is an index option that tracks the performance of the S&P 500. SPX as an underlying security, cannot be bought or sold directly like a stock. Instead, it is only traded through option contracts that derive value from the index.

SPY Options

SPY (SPDR S&P 500 ETF Trust) on the other hand, is an ETF (exchange-traded fund) that also tracks the S&P 500 but can be traded like a stock and also has tradeable options. SPY equates to approximately 1/10th the value of SPX.

Index options vs Equity options

Index options are tied to a physical index, such as the S&P 500 (SPX), and do not have any underlying stock or equity component that a trader could buy or sell. For example, you could not buy 10 shares of SPX or sell 50 shares of SPX because there is no underlying to trade. The SPX is just an index.

Equity options, however, can be converted into the underlying securities and bought and sold like stock. For example, SPY is an ETF (not an index) and therefore you could buy 10 shares of SPY or sell 50 shares of SPY because the underlying shares are tradable like equity.

Equity options are a derivative of the underlying asset. While the security can be bought and sold like a stock, traders can also use options to gain exposure to the underlying asset at a fraction of the cost of buying the underlying security.

Index options have full exposure to the underlying index, whereas equity and ETF options are typically a fraction of the cost. For example, an at-the-money SPY call option costs roughly 1/10th of a similar at-the-money SPX call option:

SPX & SPY differences 

Cash-Settlement vs Physical Settlement

Index options, such as SPX, are cash-settled. This means that when the options expire, profits and losses are credited or debited directly to the account as cash transactions, with no exchanging of underlying shares. Conversely, ETF and equity options have physical settlement, meaning traders are obligated to take on actual shares vs. cash if their option is assigned. For example, if you are assigned one SPY short put contract, you’d be long 100 shares of SPY at the option’s strike price.

European-Style Options vs American-Style Options

SPX options are also European-style options contracts, meaning they can only be exercised at expiration. This makes sense because they have no underlying shares, therefore the cash settlement would only logically occur at settlement. However, SPY options are American-style, meaning that the option buyer can choose to exercise their option any time before, and up to, expiration to convert their option to underlying shares.

Tax treatment

In the United States, SPX options are classified under section 1256 and qualify for the popular 60/40 tax rule, which allows 60% of gains to be taxed as long-term capital gains and only 40% as short-term. This means gains or losses when trading SPX are treated as a mixture of short-term and long-term capital gains no matter how long the security was held.

SPY options do no benefit from the 60/40 tax rule and are therefore subject to traditional capital gains taxes and holding times for short-term vs. long-term gains.

Commissions & fees

Many brokers in today’s marketplace offer low or no commissions for options trading broadly. However, index options are subject to additional exchange fees that are passed through to the broker and the trader which means they might carry a few additional fees not found in equity options. View the Cboe U.S. Options Fee Schedules for more information.

*It’s always a good practice to contact your broker for more information on fees and commissions for all products.

Liquidity and volume

Volume and open interest are key considerations for traders, as tickers with low liquidity can result in wide bid/ask spreads and may be more difficult to exit positions. SPY usually has higher open interest than SPX. For shorter-dated options, like 0DTE, both tickers typically have high liquidity and trading volume is generally not a factor. However, for longer-dated options, SPY consistently has much higher volume and open interest.

For example, here’s a look at similar at-the-money contracts for SPX and SPY expiring in 30 days. The open interest for SPY is 10x that of SPX.

Traders may also consider XSP, an index option that enjoys many of the same benefits of SPX. XSP trades at 1/10th the value of SPX. However, XSP typically has much lower liquidity than both SPY and SPX.