SPX vs SPY - Why I only trade the former

Hey guys,

Wanted to write up a quick post on why I trade SPX vs SPY.

For those that don’t know, SPX stands for the S&P 500 Index.

This index includes the performance of 500 large companies in the USA, including tickers like APPL, MSFT, TSLA, GOOG, AMZN, etc. It is the most traded index in the USA as it is supposed to most accurately represent our economy.

SPY is the ETF (Exchange Traded Fund) for SPX. This essentially means you can buy and sell shares of SPX at a tangible value, whereas SPX is just an index.

Thing is, most people have shares of SPY in their trading accounts (whether it’s a personal investment fund or retirement 401l), and are therefore more familiar with it. It’s because of this familiarity that they also trade options on SPY.

What most people don’t know is that you can also trade options on SPX. While SPX options cost 10x more than SPY, it’s advantageous in mainly two ways:

  1. Because it’s at 10x weight, you trade less fees per trade. Doing some dirty napkin math, you’ll be paying 90% less commission fees as someone who trades your same $$$ amount that plays SPY options.

  2. It’s taxed advantageously. When you are playing options, you are 99% trading at a short term capital gains rate. Since SPY is an ETF, your entire profit is taxed at a short term rate. When you trade SPX, an index, you are taxed 60% long term and 40% short term. a $10,000 profitable trade on SPY will get taxed at 33% (or something else depending on your tax bracket), leaving you with $6,700. A $10,000 profitable trade on SPX taxed will come out to $7,360. An almost 10% difference in profit.

  3. They have 0dte everyday for you degens that like to play them.

  4. SPX levels imo are a lot cleaner and easier to play. Going back to my DOM trading post, I use the emini to gauge levels of resistance and support (3820 is an easier level than 381.84).

One key thing to note, is SPX fills can get pretty wonky as the spreads are wider. While SPY has $.01 increments in option pricing, SPX will trade at $.05 and sometimes $.10 increments.

TL;DR - If you have the means to do so, trade SPX options instead of SPY. You’ll make more money by paying 90% less in commission fees and make around 10% more after taxes.