$94 Billion Avg. Daily Notional Value of SPX Options Volume

During recent presentations in San Francisco and Boston, I was asked the following questions –

  1. Regarding market capacity, how much size can an institutional investor get done in the index options markets without moving the market in a big way?

2. What are some differences between the SPX and SPY options?


In providing an answer for the first question above, I note that Exchange representatives should be careful about making guarantees re: future capacity or liquidity, particularly during periods of market stress. Analysts can look at past data regarding volume and notional volume to try to gain a better understanding of the possible relative capacity of different markets. Notional volume is a very important consideration for institutional investors that have many billions of dollars in assets under management.

The chart below provides estimates for the $ notional value of average daily volume during the past ten calendar months for six listed options, including the S&P 500® (SPX) options ($94 billion), SPY options ($31 billion) and NDX options ($10.9 billion).


Over the past few years a number of institutional investors have asked me the question – if we were to allocate $ billions to a BXM-type strategy, could the SPX options handle the influx of new money? In response, I encourage the investors to look at the past estimates of notional value of daily volume, and also note that BXM Index has a methodology that requires the writing of SPX options at a certain strike price (near ATM) during a two-hour VWAP time period. Some analysts use an estimated delta-weighting multiplier (e.g., 0.5) to develop more conservative estimates of notional value of volume.


S&P 500 (SPX) options have a number of features that can appeal to investors looking to manage large positions –

  • SPX options have a large notional size with $100 multiplier; ten times larger than the options on the S&P 500 ETF (SPY) options. This permits significant commission cost reductions based upon the number of contracts needed to attain the same notional exposure.
  • With European-style exercise, SPX options have no risk of early assignment for factors such as dividends.
  • Cash settlement for SPX options means there is no portfolio disruption from exercise.
  • S&P 500 index options may be written on a “covered” basis against an equivalent offsetting position in the SPDRS S&P 500 ETF (SPY) or the iShares S&P 500 ETF (IVV) in a margin account, according to CBOE Circulars.
  • Under section 1256 of the Tax Code, profit and loss on transactions in CBOE’s SPX options are entitled to be taxed at a rate equal to 60% long-term and 40% short-term capital gain or loss, provided that the investor involved and the strategy employed satisfy the criteria of the Tax Code. Investors should consult with their tax advisors to determine how the profit and loss on any particular option strategy will be taxed.


SPX index options product choices include –

  • SPX Options (ticker SPX) — AM-settled on 3rd Fridays.
  • SPX Quarterly Options — PM-settled on the last trading day of a quarter.
  • SPX Weekly Options — PM-settled at the ends of weeks.
  • SPXpm Options (ticker SPXPM) — PM-settled on 3rd Fridays.
  • SPX FLEX — Customized contract terms, such as expiration style and date.

Please visit www.cboe.com/SPX for more information.