SPX Credit Spread Trader

Agree with your comment on the american style.

A negative on SPY relative to SPX is as you say there are no .5s (i.e. 135.5, etc.), but I generally trade 10 pointers on the SPX so it's not really a big issue.

Also, what I really care about is the net credit I receive. Sure the commission is 10 times, but the net credit could be the same or better with the SPY than the SPX. Paying more in commissions to ToS, may get me a better rate than what I currently have and may qualify me for added benefits. Of course, this is just a side consideration and not the main reason I would trade SPY instead of SPX.

But if the credit is better on SPY, why not.


Quote from rallymode:

SPY being american style should be of no concern to your bear call spread unless you actually plan on letting the market go past your short side, no?

I havent done any SPY credit spreads due to the fact that i can't get a 5-pointer there so i don't know the likeliness of a better fill than a fill on the SPX options but it has been my experience with debit spreads that most of the times i can get a fill at mid point whereas with the SPX i'd have to give up some of that credit even after comms are taken into account.

Unless there is something i am missing due to my inexperience trading SPY credit spreads over SPX credit spreads, i dont see why you wouldnt go for the SPY spread in the above example.
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Nice summary.

Perusing the XSP options, there seems to only be 5 point spreads so 135/140, etc. This equates to 50 points on the SPX.



Quote from momoneythansens:

Differences (interpreted as pros/cons depending on your perspective):

  • Settlement - SPY: Stock, SPX: Cash.
  • Settlement Time - SPY: PM (Closing price of Stock), SPX: AM Settlement via SET.
  • Exercise - SPY: American, SPX: European.
  • Last trading day - SPY: Friday, SPX: Thursday.
  • Listing - SPY: Listed on multiple exchanges, SPX: CBOE tight-fisted MMs only LOL.
  • Contract Size - SPY: Based on 1/10th value of SPX. Commission implication
  • Tax - not up to date but believe SPX 60/40 but SPY no.
  • Premium - Perception of more premium on FOTM options on SPX vs SPY.
  • Strike Selection - SPY: Strikes listed every point, SPX: Finer granularity on a like for like basis - every 5 points.
  • ...more to come as I think of them...

Extrapolate for SPY vs XSP.
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Yes, while the SPY could possibly provide equal or better credit getting in, if I have to close the position, then the commissions will cause a big reduction relative to a similar SPX position. Roundtrip commissions (if required) would be a major problem.


Quote from momoneythansens:

Thanks.

As you mentioned, if doing small ROM (FOTM credit spreads for example), commissions can be a very large factor:

http://www.elitetrader.com/vb/showthread.php?s=&postid=939138#post939138

Essentially, your broker could end up making more money than you without any of the risk.
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Well, I guess the SPX MMs must have been following my posts on SPY vs. SPX. They just filled me at the midpoint.

June SPX 1355/1370 bull call filled at midpoint of $0.70.


Quote from rdemyan:

Yes, while the SPY could possibly provide equal or better credit getting in, if I have to close the position, then the commissions will cause a big reduction relative to a similar SPX position. Roundtrip commissions (if required) would be a major problem.
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When comparing the SPY to the SPX, don't forget that there is a dividend built into the price of the SPY's. It's not exactly 1/10th the value of the SPX.

Mo, I don't think that you get 60/40 tax treatment trading options on the SPX cash index. I could be wrong, but I think it's only for options on the futs.

Cheers!
 
Quote from rdemyan:

I want to compare a current potential SPY trade with an SPX trade:

1) 10 June SPX 1350/1360 bear call. Mid is at $0.70.

Net credit (at midpoint) = $675 (includes $25 commission)

2) 100 June SPY 135/136 bear call. Mid is at $0.10

Net credit (at midpoint) = $750 (includes $250 commission).

Now the SPY is "American", which means that I'm subject to early assignment. Also, realistically I'll have to give some on the SPX midpoint. If I have to give $0.05 on the SPY, then it certainly isn't worth trading the SPY. But isn't it easier to actually push a trade through at the midpoint on the SPY?

Other than these things, refresh my memory as to why we generally ignore trading SPY credit spreads.
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Having done both, I prefer the SPY's. Commish somewhat higher but getting in and out is easier and credit on the one-pointers for the same $ at risk has been higher.
 
Quote from Arb Under Par:


Mo, I don't think that you get 60/40 tax treatment trading options on the SPX cash index. I could be wrong, but I think it's only for options on the futs.

Cheers!
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SPX options are cash settled and therefore DO get 60/40 treatment. SPY don't get the beneficial treatment though. That is another consideration for trading them. I used to prefer them because I could usually get much better fills, but after comparing all the differences (including tax treatment) I've started leaning heavily toward SPX. I agree with OC in that SPY/XSP make failry good hedges if used properly.
 
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