You may not know this, but there is a product from the CBOE (the Chicago Board Options Exchange) that may interest option traders. It is the XSP, which is the mini version and one-tenth the value of the S&P 500 (SPX). The S&P 500 is the capitalization-weighted index of 500 stocks from various industries. This gives option traders more flexibility and potentially less risk than trading the SPX. Let’s look at a few specifics.
SPX vs. XSP Option Chains
Below you see an option chain of XSP and one of the SPX.
Notice the similarities but also the differences in price. The SPX is much more expensive premium wise than the XSP. Let’s examine more differences and a similarity.
Cash Is King
Just like the SPX, XSP options are cash settled. A trader’s account is debited or credited in cash with no chance of delivery of unwanted shares. In addition, there is more flexibility with the XSP because it is one-tenth the size of the SPX. Sometimes trading that big SPX position can be daunting. Here, an option trader can choose the XSP and a smaller position and can work up to a larger position if wanted or warranted.
XSP options are European style, which means they are only exercised at expiration. American-style options can be exercised at any time before and including the day of expiration. XSP weekly options expire on Monday, Tuesday, Wednesday, Thursday or Friday. The CBOE may choose to list up to 12 months of XSP options at one time and LEAPS may also be listed.
There may also be tax benefits for option traders as there are for those who trade the SPX. The XSP options are also taxed 60/40. Even if the option is held less than a year, 60% is taxed long term and 40% short term. Keep in mind, though, that you need to discuss this with a tax professional who is familiar with options.
Give It a Whirl
If you already trade SPX options, the XSP may give you more flexibility. If you don’t, but have thought about it, this might be a perfect way to take the plunge.
Senior Options Instructor