To The Moon

Exciting news! Discover SPX index options trading and save money by allocating the S&P 500 index! Did you know that you can invest in indices through index options? Tiger Trade now supports options trading for several popular indices, including SPX, DJX, and NDX. This means that you can lower your costs and reduce trading fees when investing in indices. But what exactly are index options, and why is trading options on indices more cost-effective?

Index options are options contracts based on stock market indices. Let's focus on SPX index options, which have good liquidity. The S&P 500 index is considered an excellent benchmark for measuring stock market performance. However, the index cannot be directly traded, and market participants can only profit from it by trading ETFs that track the SPX, such as SPY, or options contracts based on the index.

Here are some features of SPX options that you need to know:

1.Cash settlement & European options

SPX options are cash-settled, and they are European options, which means that the buyer cannot exercise the option early.

2.Trading hours

US Eastern Time: 9:30 a.m.-4:15 p.m. ( Sydney Time: 11:30 p.m.-6:15 a.m. the following day (AEST)/New Zealand Time: 1:30 a.m.-8:15 a.m./Singapore Time: 10:30 p.m. - 5:15 a.m. the following day )

3.Last trading day

• Monthly options: T-1 to the expiration date (the expiration date for monthly options is the third Friday of each month, which means that they usually trade until Thursday).

• Weekly options: Trading until the expiration date.

Note: Compared to monthly options, weekly options reflect short-term supply and demand in the market, providing traders with short-term reference information.

4.Expiration date

• Monthly options: The third Friday of each month.

• Weekly options: Every Friday.

5.Minimum price change unit

This refers to the smallest unit by which the premium price changes when the buyer and seller make an offer. It is usually expressed in index points.

=<$3: 0.05 ($5.00): When the minimum quote for SPX options is =<$3, the minimum price change unit is 0.05 index points. The contract multiplier is $100/point, so a 1-lot SPX index option changing by one minimum price unit represents a gain or loss of $5 (0.05 points * $100/point).

$3: 0.10 ($10.00): When the minimum quote for SPX options is >$3, the minimum price change unit is 0.1 index points. The contract multiplier is $100/point, so a 1-lot SPX index option changing by one minimum price unit represents a gain or loss of $10 (0.1 points * $100/point).

Now, you might be wondering how to trade SPX options on Tiger Trade. It's simple! Just open the Tiger Trade app, search for SPX, and click on options. Select any Friday expiration contract, and you're ready to trade!

How to Trade SPX Options on Tiger Trade?

Open the Tiger Trade app, search for "SPX", click on "Options", and choose any contract expiring on Friday to trade.

Image: Tiger Trade app.

Image: Tiger Trade app.

The Connection and Differences between SPX Options and SPY Options

You might be familiar with SPY, an ETF that tracks the S&P 500 Index. SPY options are quite active, and liquidity is strong. So, what is the connection and difference between SPX options and SPY options?

Image: Tiger Trade app.

Image: Tiger Trade app.

First, let's discuss the connections:

1.Both are related to the S&P 500 Index;

2.Their prices differ by approximately tenfold. For example, if the SPX price is $4,000, then SPY would be around $400. The difference won't be exactly 10 times, but it's close.

Now, let's look at the differences:

1.Contract Type: European Options vs. American Options

SPX options are European options, meaning the buyer can not exercise the option early; SPY options are American options, allowing the buyer to exercise early.

2.Settlement Method: Cash Settlement vs. Physical Settlement

SPX options are cash-settled, meaning the underlying settlement price determines the option's profit or loss, and cash is directly deposited or withdrawn from the account. For example, if you buy a call option with a strike price of 4,100 for $10, and the SPX is at 4,150 upon expiration, your profit would be (4,150-4,100-10) * 100 = $4,000.

SPY options are physically settled, meaning if your option is in-the-money at expiration, you will receive the 100 shares of the SPY ETF at the option's exercise price.

3.Contract Size

Compared to SPX index options, SPY option contract sizes are much smaller, the contract size of the SPY is 1/10th the size of the SPX,making them more accessible to smaller investors. In contrast, SPX options are more suitable for larger investors or those who trade frequently, as selecting larger contract sizes can save on transaction costs.

For example, if you believe the S&P 500 Index will rise to 4,130 points in the future, you could buy the corresponding SPY and/or SPX options:

SPY option contract multiplier is 100; you buy 1 contract of a call option with a strike price of 413, spending $155 (1.55 * 1 * 100), with an underlying SPY value of $41,300 ($413 * 100).

Now let's look at SPX index options. The contract multiplier is $100/point; you buy 1 contract of a call option with a strike price of 4,130, spending $1,800 (18 * 1 * 100), with an underlying value of $413,000 ($4,130 * 100).

Suppose you hold nearly $413,000 worth of stocks, and you want to hedge using options. If you choose SPY options, you need to buy 10 contracts, whereas, with SPX index options, you only need to buy 1 contract, saving a significant amount on transaction costs.