Record Volume Day and Month for PM-Settled Mini-SPX Options (XSP)

For investors who want smaller-sized cash-settled S&P 500® options, CBOE initially launched Mini-SPX options (ticker XSPSM) in 2005, and in 2013 CBOE changed the settlement of XSP options to PM-settlement. The 2013 change appears to have had a positive impact on XSP options volume over the past couple years, as the new PM-settled XSP options recently had their high-volume marks –  (a) daily volume of 35,649 on June 3, 2014, and (b) one month’s average daily volume of 4,763 in May 2014.  Open interest at the end of May 2014 rose to 194,220 XSP options contracts. (See charts below).


  1. Smaller contract size – with a contract size 1/10th the size of SPX options (the same size as SPY options) to fit a variety of portfolios and strategies
  2. Cash settlement – XSP contracts settle with cash, so you never have to make or take delivery of unwanted shares and disrupt your portfolio
  3. PM-Settlement – XSP options are PM-settled at expiration, so you can trade through the day on settlement day (usually Friday), the same as single-stock options and ETF options
  4. European-style exercise – which protects option sellers against assignment prior to expiration (so-called “early assignment”)
  5. Simplicity and efficiency – achieve broad-market exposure in one trade, with a manageable contract size. S&P 500 Index options give you exposure to the broad market with diversification at a fraction of the cost of buying individual stocks
  6. Electronic access to S&P 500 Index options – fast and simple point-and-click access to markets with the potential for immediate execution of orders with CBOE’s electronic, state-of-the-art system
  7. Risk mitigation – XSP Index options offer a convenient and easy way to help reduce the risk of a broad market portfolio
  8. Predetermined risk – purchasers risk only the premium they pay for the option
  9. XSP Index is near record high levels – and XSP options can play a key role in portfolio rebalancing and asset allocation strategies
  10. Covered calls — CBOE Circulars (RG99-09 and RG00-171) allow S&P 500 options to be written on a “covered” basis against SPY or IVV ETF shares in a margin account, provided the investor’s brokerage firm has such policies in place.
  11. “60-40” tax treatment – visit for discussions of tax treatment
  12. Intriguing volatility skew and strategy ideas – The chart below shows very different volatility skews on June 17 for options on Google, USO ETF, and the XSP Index.  Bloomberg estimated that the 30-day implied volatility for 10% out-of-the-money (O-T-M) XSP put options was around 18.2, while the 30-day implied volatility for 10% O-T-M XSP call options was only around 8.2. In examining the chart, it is possible that there could be quite a bit of demand for both downside protection in XSP (with O-T-M XSP protective puts), and upside protection with O-T-M USO call options. For investors who are considering the purchase of index options, the chart below shows implied volatilities at relatively low levels (8.2 to 10.3) for XSP options from 100% moneyness to 110% moneyness. For investors who desire to maximize potential long-term risk-adjusted returns, one strategy that could be explored could be the selling of cash-secured O-T-M XSP put options.  (The CBOE S&P PutWrite Index (PUT) writes cash-secured S&P 500 put options that are slightly out-of-the-money).

11Skew JUNE 17

XSP CHARTS (JAN. 2013 – JUNE 2014)

The XSP Index hit an all-time high daily close of 195.13 on June 9, 2014.  For more information and chart updates on the XSP Index, please visit

112XSP 3 charts Jun 17