Options Strategist
Summary: The upcoming CPI-numbers can impact the overall market, so you might consider a trade-setup on an underlying with a broad reach, like the S&P 500 Index. This article discusses possible trade setups using options on the S&P 500 Index.
As the CPI-numbers can impact the overall market, you might consider a trade on an underlying with a broad reach, like the S&P 500 Index. The S&P 500 Index is identified by the SPX-ticker.
Options on the SPX are an alternative to options on the SPY. Unlike the SPX, the SPY is an ETF, and approx. 10 times smaller than the SPX. There are however more differences why some traders and investors prefer the SPX:
- Cash Settlement: SPX options are cash-settled, meaning you won't end up with a large position in the underlying securities when the options expire. This can be beneficial if you want to avoid the potential complications of physical settlement. In some countries you avoid extra taxes in case of assignment.
- Size: Each SPX option contract represents 100 times the index level. For example, if SPX is at 4,000, each contract represents $400,000 in value. This makes SPX options more efficient for larger accounts.
- European-style Exercise: SPX options can only be exercised at expiration, which eliminates the risk of early assignment that you might face when trading American-style options like SPY.
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