CBOE - Cboe’s Mini-SPX Index Options: A Gateway To Option Affordability And Tax Benefits
(NewsDirect)
By Jad Malaeb, Benzinga
Cboe Global MarketsInc. (BATS: CBOE), the proprietor of the world’s largest optionsexchange, has Mini-SPX(XSP) Weekly Options in its portfolio of market-definingproducts.
Since1973, Cboe’s innovation has defined many of the market’s popularconstituents, including the Volatility Index (VIX), electroniccommunication networks and options contracts listings. As the retailtrading community rose to new heights in 2021, Cboe’s existingportfolio includes XSP, an index option product tracking the Standard& Poor’s 500 Index (SPX).
Atone-tenth the size of standard SPX contracts, XSP option contractsallow retail traders the opportunity to engage in alpha-generatingstrategies and access portfolio-hedging tools more affordably. Traderscan also use XSP to trade around news catalysts like the ConsumerPrice Index report, and execute overwriting or spread-based optionsstrategies.
Benefits Of XSP Options
Because XSP options aretied to the SPX, trading XSP provides traders with access to a basketof 500 stocks across various sectors. For traders engaged in LEAPS ormulti-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 theiraffordability and breadth, XSP options also offer additional taxbenefits. According to Section 1256 of the tax code, trading indexoptions may entitle traders to a 60% long-term and 40% short-termcapital gains tax treatment given certain conditions are met.
Additionally, XSPoptions are European exercise style, meaning the trading account iscredited or debited in cash rather than physical shares. This allowstraders to reap the benefits of their investing or hedging strategiesand mitigates the risk of losing profit over a depreciating stockprice once the option trade has ended.
As a final risk mitigation benefit, XSPoptions can protect call sellers from dividend risk. If a seller’snaked call is in-the-money and an ex-dividend date is coming up,assigned sellers will have to deliver the shares of the underlyingsecurity and the dividend income in cash. With XSP options, sellersare not liable for buyers’ dividend income, so this threat iseradicated.
Similar to standard SPX option contracts, XSP contracts have arange of settlement date options ranging from Monday to Friday. Thisgrants users the flexibility to hedge on any day of the week for tentimes cheaper than standard-size option contracts.
XSP options providetraders with the ability to manage risk while exposing traders toupside potential. Options trades have never before been so accessible.
Click here to learn more about Mini-SPX options.
This article was originally published on Benzinga here .
This post contains sponsored advertising content. This content is forinformational purposes only and is not intended to be investingadvice.
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