Trading the CBOE’s SPX AM and PM settled Options


Friday, September 19th, 2014 | Vance Harwood

If you are trading more than a few SPY options you should take a look at the CBOE’s SPX and SPXpm  options—they can save money and aggravation.

First about the money, SPX/SPXpms are:

  • 10X the size of SPY options,  reducing commission costs if you are trading positions of that size.  Their price is roughly 10X the equivalent SPY option.
  • Considered taxable as section 1256 contracts—generally 60% of your gains are treated as long term, regardless of how long you hold them
  • Cash settled so there is no need to close out a trade just to eliminate the risk of an option being exercised

SPX/SPXpms reduce aggravation because:

  • They eliminate pin risk, and any other scenarios where you end up long or short securities when your options expire in the money
  • They can only be exercised at expiration (European style), so there is no risk of early assignment unbalancing a spread position.   You don’t have worry about ex-dividend dates.
  • For SPXpm options there are no delays in settlement—the opening price of SPX can sometimes be delayed because of order imbalances, the market close is inherently more orderly.

I’ve traded SPX/SPXpm options for a while now, and there’ve been a few surprises, some good, some bad.

  •  There are five flavors of SPX options:
    • The standard AM settled options that expire on the morning of the third Friday of the  month (SPX).  These are floor traded and usually have wide spreads bid/ask spreads.  Their expiration value is published under the ticker SET  (^SET for Yahoo Finance).
    • Four PM settled flavors: the Weeklies (SPXW), the End of Month (SPXW), the Quarterlys (SPXQ), and the PM version of the SPX (SPXPM)  that settles Friday afternoon.   The first three show up under the SPX symbol in option chains, the SPXPM options show up in their own chain.   The Quarterlies will trump the Weeklys, The End of Month, and the PMs if they all fall in the same week.Could the CBOE have made this more confusing?  The PM expiring options use the standard S&P 500 Friday close SPX (^GSPC for Yahoo Finance) as their expiration value.
  • If you want Friday PM settlement on the traditional monthly expiration week you must use the SPXPM symbol, for the other weeks use SPX.  User beware.
  • The minimum increment on prices, even spreads is $0.05
  • Close to the money strikes are offered at 5 point intervals (e.g., 1795 / 1800),the equivalent on SPY options would be 179.5 / 180.   These 5 point intervals enable tight credit / debit spreads and better resolution in placing positions.
  • While the bid / ask spreads on AM settled SPX options are always huge, the PM settled options are much better. For SPX options a  limit order halfway between the bid and ask will usually fill.  Never use a market order—you are leaving money on the table.
  • Non-expiring SPX/SPXpm options trade until 15 minutes after regular market close

 

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Friday, September 19th, 2014 | Vance Harwood

1 Comment

  • Comment by B1llmoo — February 10, 2013 @ 11:22 am

     Nice Article. I think you can trade in your IRA with at least 10k for spreads on indexes. I have been a big fan of the SPX but the spreads suck. I have not traded SPXPM might give it a chance. 

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