SPX vs. SPY: Differences Explained

Article Summary:

SPX is short for the S&P 500, one of the most popular benchmarks of the stock market. It includes (roughly) the 500 largest companies in the U.S. stock market. SPY was the first (and one of the most popular) exchange-traded funds designed to track the SPX. Trading options on the S&P 500 is a popular way to invest in the index. There are several ways to do this, but trading options on SPY or the SPX are probably the most popular. This article discusses the main differences when trading options on SPX vs. SPY.

The SPX (aka Standard & Poor’s 500 index) is one of the most widely used benchmarks to measure the performance of the stock market as a whole. The SPY (aka SPDR S&P 500 ETF Trust) is an exchange-traded fund that tracks the SPX. If you want to invest in the SPX and you like ETFs, you will probably consider buying an ETF like SPY. As you can see comparing SPX and SPY is not an apples-to-apples comparison. However, investors often — particularly stock options traders — often discuss the pros and cons of investing directly into the SPX and using an ETF like SPY.

For anyone unfamiliar with stock market terminology, this may sound like a lot of gibberish. What are SPY and SPX? What’s an ETF? What are options and how do you trade them? In this article, we’ll break down what SPY and SPX are, how they differ, and which tool may be best for your trading style.

First, what is an ETF?

SPY may have been the first ETF, but many have followed in its wake. In general, an exchange-traded fund (ETF) combines a variety of securities in one unit (some call it a basket of assets), like stocks, bonds, and other securities. It’s traded on the stock exchange all day just like an individual asset. ETFs shouldn’t be confused with mutual funds, which only trade once a day at the close of business.

Investors buy shares in the fund, but they don’t own the underlying assets. ETFs usually track a specific index, sector, commodity, or other asset, and can be U.S. only, whereas others are international.

What is SPY?

The SPDR S&P 500 ETF Trust (SPY) is an exchange-traded fund that tracks the performance of the S&P 500 index. SPY holds a portfolio of stocks included in the S&P 500 and aims to produce returns roughly in line with the S&P, at about 10% of the index price. It was the first ETF, originating in 1993 by State Street Global Advisors, and has historically been a steady performer and favorite for investors of all kinds.

How does SPX differ?

SPX is a little different than SPY in that it’s not a traded fund, which means you can’t buy shares in it. SPX actually refers to the S&P 500 index. When you trade SPX options, you are basically betting on whether the index will go up or down within a specific time period.

Trading options SPX vs. SPY

When people refer to trading SPX they are referring to options trading. So when investors compare SPX Vs. SPY they are generally talking about the differences in trading options using the SPX and SPY. The S&P 500 is an index of the 500 top U.S. publicly-traded companies and is considered one of the best gauges of the overall health of the stock market. For those looking to invest in the S&P 500, you may want to consider SPX or SPY options.

What are options?

In general, options are contracts that give the purchaser an “option” to buy or sell a security at a specified price within a specific period of time. Put simply, trading options refers to trading the right to buy or sell those securities without the risk of price changes.

There are two types of options: a call option or a put option. A call option gives you the right to buy an asset at a set price, while a put option gives you the right to sell at a set price.

How do you start trading options?

If you want to get into options trading, you’ll first need to open a brokerage account if you haven’t already. If you’re unsure about what your ideal investment strategy is, set some time aside to research. If you need professional advice, consider reaching out to an investment advisor before deciding if SPX and SPY options trading is right for you.

Key differences between SPX and SPY options

One difference between an SPX option versus an SPY option is that SPX options are European-style options. That means they can only be exercised at their expiration date, which is (sometimes) the third Friday of the month.

By contrast, American-style SPY options can be exercised at any time before the expiration date, which comes at the close of business on expiration Friday.

IMPORTANT! Just a quick reminder that an option holder has the opportunity—not an obligation—to buy or sell at a specific price. This is called the “strike price,” before the date of expiration. If option traders let the SPY or SPX options expire, they become worthless.

Let’s take a closer look at the differences between two of the most popular trading vehicles: SPY and SPX options.

SPY vs. SPX option styles and expiration schedules

As mentioned above, SPY options are American-style options, based on an ETF that tracks the S&P 500 index. American-style means it gives the purchaser the option to buy or sell at any point prior to the close of business on expiration Friday. This flexibility can be handy if you want to exercise your option before the expiration date.

SPX, on the other hand, are European-style options that are based on the S&P 500 index itself, and can only be exercised at the expiration date. Some SPX options also expire at the close of business on expiration Friday. However, other SPX options expire on the third Friday of the month. These options stop trading the day before (the third Thursday) and determine the settlement price by the opening prices of the index’s stocks the next day.

With SPX options you don’t have to worry about cashing in early for any reason since it’s not allowed. You can also take more time to make decisions, as you can’t trade before the expiration date as with a SPY option.

SPY vs. SPX option settlement

Another key difference between SPY and SPX options is how they’re settled. When you trade SPX options, they are cash-settled because the underlying asset itself is not traded, as it is with SPY options.

This means if you’re “in the money” (when you exercise your option), you’ve made a profit, and cash will be deposited into your brokerage account. If you’re “out of the money,” this means your option lacks any intrinsic value and you cannot make a profit from it.

By contrast, a SPY option is physically settled, meaning you are paid in shares. You are paid in shares rather than cash because the underlying asset itself is being traded on the exchange. After closing out your position, you will either receive or owe shares. SPY option dividends are paid quarterly, usually at the time of expiration in March, June, September, and December.

SPX vs. SPY values

SPY options value at approximately 1/10 the value of SPX options because SPX directly follows the S&P. That means an SPX option with the same strike price and expiration as an SPY option will be valued at 10 times the price.

For example, if SPY options traded at $50, SPX options would trade for about $500. More specifically, right this minute (April 18, 2022), SPX is at $4,424 and SPY is $441 — pretty close to the mark.

SPX OptionsSPY Options
Style:European-style optionsAmerican-style options
Dividends:No dividendsPay dividends quarterly
Settlement:Settles in cashSettles in shares
Expiration:Varies, but can be for stocks that expire on third Friday of monthClose at expiration Friday
Value:About 10x SPYLess than SPX

Pro Tip

If want to be paid in shares, pick SPY options trading. If you prefer to settle in cash, choose SPX.

Which options trading is best for you?

That decision on which is “best” is entirely up to the investor and depends largely on your personal investing strategies, as well as short- and long-term goals. It also depends on how much capital you have to invest, keeping in mind that the value of SPX is about ten times that of SPY.

Both SPX and SPY options are nifty tools that investors can use to profit from either an increase or a decrease in the S&P 500 index, but your choice may be limited by your capital.

If money is no object, then you simply have to decide which you prefer. For those you want to make a larger investment, don’t care about dividends, and prefer cash settling, you might try SPX. If you’re looking for a more price-efficient, flexible option, you could go with SPY.


Is there a tax advantage to SPX vs. SPY options?

There is a certain tax advantage of trading SPX over SPY options. However, you’ll want to speak with a tax professional about the specifics, as laws and regulations constantly change.

As of now, SPX and SPY options are treated differently by the Internal Revenue Service, and SPX is given special treatment under Section 1256. This allows investors to have 60% of their trading profits treated at a long-term tax rate. SPY options, by contrast, are taxed at a short-term tax rate.

Are SPY and VOO the same?

SPY and VOO are similar in that they are both exchange-traded funds that track the S&P 500 index. SPY was the first of its kind and remains the largest and most liquid ETF in existence.

While VOO (Vanguard 500 Index Fund ETF) has done impressively since its inception in 2010, it doesn’t have as long of a track record as SPY, and the country has pretty much been in a bull market the entire time. Potentially, that could make some investors wary of its long-term potential to produce.

Can you buy SPX?

No. SPX options are not physical assets with intrinsic value that can be bought and sold like individual stocks or bonds. Exercising your option with SPX is essentially betting on which way the market will go.

Trading SPY options is different because it’s an ETF, which trades just like traditional securities such as stocks or bonds.

Which is better: VTI or SPY?

That’s hard to say. They’re both popular ETFs traded on the stock exchange, although they track different indexes. While the SPY tracks the S&P 500 index, VTI (the Vanguard Total Stock Market ETF) tracks the CRSP U.S. Total Market index. This index tracks a lot more stocks than SPY—more than 3,500 versus the 500 of the S&P — which can be attractive to some investors.

Then again, the S&P index has arguably the “best” stocks. Currently, VTI is trading at $220, while SPY is at $437 and they’re both down for the day.

Key Takeaways

  • SPX is a European-style option while SPY is American-style. This means SPX options can only be exercised on the expiration day, while SPY options can be exercised anytime before the expiry date.
  • Both SPX and SPY options are based on the S&P 500 index.
  • SPY is an exchange-traded fund, whereas SPX tracks the index itself.
  • The market value of SPX is valued at roughly 10 times the value of SPY options, which may influence your investment strategy.
  • SPY options pay you in shares, whereas SPX options are cash-settled.
View Article Sources
  1. Notice of Filing of a Proposed Rule Change To Permit P.M.-Settled S&P 500 Index Options — Federal Register
  2. Equity Index Option Writing: S&P 500 Index PutWrite — State of Rhode Island Office of the General Treasurer
  3. How To Invest In The Stock Market: 8 Basic Concepts — SuperMoney
  4. 24 Stock Trading Secrets From The Most Successful Investors — SuperMoney
  5. What Is Scalping In Trading? Strategies and Examples for Beginners — SuperMoney
  6. What are Cyclical Stocks? — SuperMoney
  7. What is a Stock Float? Examples of High Vs. Low — SuperMoney
  8. Best Online Brokers for Stock Trading in 2022 — SuperMoney
  9. Best Stock Trading Apps in 2022 — SuperMoney
  10. Brokerages: Reviews & Comparisons — SuperMoney