You can trade options on the S&P 500 in two main ways: on the index itself (SPX) or on the SPDR S&P 500 ETF (SPY). They track the same market but differ in size, settlement, exercise style and, for US taxpayers, tax treatment.
| SPX | SPY | |
|---|---|---|
| Underlying | The S&P 500 index | An ETF priced at about 1/10 of the index |
| Contract size | Index × $100 | ETF price × $100 |
| Exercise | European: only at expiry | American: any time before expiry |
| Settlement | Cash | Physical: shares of SPY change hands |
| Early assignment risk | None | Yes, on short options |
| US tax (for US taxpayers) | Section 1256: 60% long-term, 40% short-term | Standard short- or long-term capital gains |
| Smaller version | XSP (Mini-SPX), 1/10 the size | — |
Why the differences matter
- Size: SPX premiums and risk are about ten times larger per contract. Smaller accounts often use SPY or XSP.
- Cash settlement: an in-the-money SPX option at expiry simply pays cash. A SPY option can leave you holding (or short) 100 shares per contract.
- No early assignment: with European-style SPX, a short option can't be assigned before expiry, which makes spreads easier to manage.
- Liquidity: both are among the most liquid options in the world, with expiries every trading day.
Worked example
The S&P 500 is at 5,000. A one-week at-the-money SPX call costs 40.00 points: $4,000 per contract.
The equivalent SPY call (SPY at $500) costs about $4.00: $400 per contract. Same exposure per dollar, a tenth of the size.
Key takeaways
- SPX options are on the index; SPY options are on an ETF worth about a tenth of it.
- SPX is European-style and cash-settled; SPY is American-style and settles in shares.
- One SPX contract is about ten times the size of a SPY or XSP contract.
- In the US, SPX gets 60/40 tax treatment; elsewhere, local rules apply.