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Anyone trade index options?
Posted on 4/1/25 at 10:38 am
Posted on 4/1/25 at 10:38 am
Looking at XSP specifically. Recently got launched on robinhood and XSP seems pretty attractive.
Long story short:
- XSP specifically is a mini S&P 500 index, like SPY; both have daily options to trade
- The difference between XSP and SPY is XSP settles on expiration 100% of the time (cant assign early) and settles for cash every time (ie, no shares assignment, if you sell a $100 put, and its ITM by $.50 on expiration, they take $50 from you so you end up with $50 total on that trade, not 100 shares at the strike price you chose
- The biggest difference to me is the tax treatment, all gains are treated 60/40 split long term/short term, regardless of the trade time. This means you can get significant tax savings compared to SPY which follows the typical <1 year = short term and 1+ year = long term. You could trade daily options on XSP, and the gains on those trades will be taxed 60% LTCG/40% STCG....so thats the big draw here
- Obviously since you are always settling for cash, you would not be subject to dividends if you never actually get assigned or own the stock itself
Long story short:
- XSP specifically is a mini S&P 500 index, like SPY; both have daily options to trade
- The difference between XSP and SPY is XSP settles on expiration 100% of the time (cant assign early) and settles for cash every time (ie, no shares assignment, if you sell a $100 put, and its ITM by $.50 on expiration, they take $50 from you so you end up with $50 total on that trade, not 100 shares at the strike price you chose
- The biggest difference to me is the tax treatment, all gains are treated 60/40 split long term/short term, regardless of the trade time. This means you can get significant tax savings compared to SPY which follows the typical <1 year = short term and 1+ year = long term. You could trade daily options on XSP, and the gains on those trades will be taxed 60% LTCG/40% STCG....so thats the big draw here
- Obviously since you are always settling for cash, you would not be subject to dividends if you never actually get assigned or own the stock itself
This post was edited on 4/1/25 at 10:39 am
2
Posted on 4/1/25 at 9:32 pm to thunderbird1100
If you're an options trader, it's SPX. If you're asking this question, SPX will wreck your life since you can't trade SPY to begin with.
Posted on 4/2/25 at 7:09 am to ApexHunterNetcode
quote:
If you're an options trader, it's SPX. If you're asking this question, SPX will wreck your life since you can't trade SPY to begin with.
SPX is the large version where you need $560k+ to cover position in cash. I dont trade with margin.
XSP is mini version like SPY, just settles differently and has different tax treatment. Much easier to cover with only $56k or so needed by comparison.
This post was edited on 4/2/25 at 7:10 am
Posted on 4/2/25 at 9:30 am to thunderbird1100
No, just trade spy or spx options. They have the best liquidity and spreads. You should never be taking assignment regardless on options, no matter what ticker, unless you're doing something like wheeling or selling CC to take profit.
Posted on 4/2/25 at 9:53 am to The Scofflaw
quote:
No, just trade spy or spx options. They have the best liquidity and spreads. You should never be taking assignment regardless on options, no matter what ticker, unless you're doing something like wheeling or selling CC to take profit.
XSP I havent found any liquidity issues with (theres enough volume I've seen) and get filled immediately. Again I'm only selling puts for the most part, I never do spreads. No its not SPY volume by any shape of the imagination, but again, I've gotten things filled almost immediately each time.
Always settling for cash is a nice plus to me, and the 60/40 tax treatment is a HUGE benefit over SPY. SPX is a no go for me since I'm only doing covered calls/puts ($560k+ not exactly in my brokerage account
). Again this is for taxable brokerage account, not retirement account where this wouldnt matter. If you profit $10k/yr all short term on SPY (basically selling somewhat safe covered puts daily), for me that would all be taxed at 24% federal rate. If I do the exact same thing on XSP, 60% of that will be taxed at 15% instead of 24%.
So the effective federal tax doing SPY would be $2,400 on that $10k profit. For XSP it would only be $1,860 ($6k @ 15% and $4k @ 24%). Thats not insignificant
Posted on 4/2/25 at 10:13 am to thunderbird1100
If it's working for you. You can also trade futures micro and mini lots for the same tax benefits as SPX, if you find it to your liking.
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