Cboe's Mini-SPX Index Options: A Gateway To Option Affordability And Tax Benefits

Cboe Global Markets Inc. CBOE, the proprietor of the world’s largest options exchange, has Mini-SPX (XSP) Weekly Options in its portfolio of market-defining products.

Since 1973, Cboe’s innovation has defined many of the market’s popular constituents, including the Volatility Index (VIX), electronic communication networks and options contracts listings. As the retail trading community rose to new heights in 2021, Cboe’s existing portfolio includes XSP, an index option product tracking the Standard & Poor’s 500 Index (SPX).

At one-tenth the size of standard SPX contracts, XSP option contracts allow retail traders the opportunity to engage in alpha-generating strategies and access portfolio-hedging tools more affordably. Traders can also use XSP to trade around news catalysts like the Consumer Price Index report, and execute overwriting or spread-based options strategies.

Benefits Of XSP Options

Because XSP options are tied to the SPX, trading XSP provides traders with access to a basket of 500 stocks across various sectors. For traders engaged in LEAPS or multi-leg options orders, XSP options therefore can provide a way to “invest” in a broad market index over a long-term horizon, mitigating risk over single-stock options.

Aside from their affordability and breadth, XSP options also offer additional tax benefits. According to Section 1256 of the tax code, trading index options may entitle traders to a 60% long-term and 40% short-term capital gains tax treatment given certain conditions are met.

Additionally, XSP options are European exercise style, meaning the trading account is credited or debited in cash rather than physical shares. This allows traders to reap the benefits of their investing or hedging strategies and mitigates the risk of losing profit over a depreciating stock price once the option trade has ended.

As a final risk mitigation benefit, XSP options can protect call sellers from dividend risk. If a seller’s naked call is in-the-money and an ex-dividend date is coming up, assigned sellers will have to deliver the shares of the underlying security and the dividend income in cash. With XSP options, sellers are not liable for buyers’ dividend income, so this threat is eradicated.

Similar to standard SPX option contracts, XSP contracts have a range of settlement date options ranging from Monday to Friday. This grants users the flexibility to hedge on any day of the week for ten times cheaper than standard-size option contracts.

XSP options provide traders with the ability to manage risk while exposing traders to upside potential. Options trades have never before been so accessible.

Click here to learn more about Mini-SPX options.

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This post contains sponsored advertising content. This content is for informational purposes only and not intended to be investing advice.