What are SPXPM Options
You may have heard of SPX and SPXPM options. They are both Options on the S&P 500 Index. The SPX is the regular version, and the SPXPM options is a variant that expires at the close of business after Friday. Whereas the SPX Options close at the opening print on Friday.
You may have noticed if you’re trading the regular SPX Options that the Options don’t lose all their value after close of market on the Thursday of expiry. Although they don’t trade on Friday morning, the closing print for the SPX options depends upon the opening print for all the S&P500 components on that Friday morning. This is obviously risky because the next morning could be (and often is) a whole new day, and the SPX final expiry print could be vastly different from the previous day’s close. Secondly, the final print has to wait for all the components to trade, which could take upto 12 noon or more on Friday. Not only are you left guessing as to the final print, your margins are stuck, with no way for you to get out of the trade. Hmm…Not a good place to be.
So the alternative to this problem is – SPXPM Options. They expire on the Friday after market hours, so there is no guesswork on the final print.
What are the cons of the SPXPM Options ? It’s mostly the Open Interest. Check out the two graphics below for the SPX and SPXPM Options in the August series with 30 days to expiry.
SPX Open Interest is much more by a magnitude of 1000. But if you’re okay with the low Open interest and want to take up small contract positions (5 to 10), you should be fine. The Bid-ask spread seems to be similar in both cases. Hopefully the Open Interest and Volume will catch up with the SPXPM Options soon, and the closing print can become a less of an uncertain thing.
Which really begs the question – Why does CBOE have all these weird settlement rules ? As far as I can see, it provides no benefits.
SPX Open Interest
SPXPM Open Interest