SPX vs SPY Options: The $10,000+ Tax Advantage You're Missing
If you're trading SPY options, you're likely paying $10,000+ more in taxes than you need to. SPX options offer the same market exposure with significant tax advantages, cash settlement, and better broker treatment.
You've probably heard that SPX and SPY options are similar. They track the same index, move in lockstep, and offer similar leverage. But the differences are significant—and they can cost you thousands of dollars per year.
This isn't about preference. It's about measurable financial advantages. After trading both for years, I switched exclusively to SPX options. Here's exactly why, with numbers that show the real cost of choosing SPY.
SPX vs SPY: Quick Comparison
| Feature | SPX | SPY |
|---|---|---|
| Tax Treatment | 60/40 Split (Lower Rate) | Short-term (Higher Rate) |
| Settlement | Cash Settled | Physical Settlement Risk |
| Broker Risk Management | Full Control Until Expiration | Broker Can Close Positions |
| Exercise Risk | No Exercise Risk | Exercise Risk on ITM Options |
| Small Account Trading | No Margin Requirements | Margin Required for Exercise |
| Contract Size | $100 per point | $100 per point |
| Liquidity | Excellent | Excellent |
The $10,000+ Tax Advantage: The 60/40 Split
This is the biggest reason to choose SPX over SPY. The tax savings alone can be worth thousands—or tens of thousands—per year depending on your trading volume.
Why SPX vs SPY
SPX options receive special tax treatment that can save you thousands in taxes compared to SPY options.
The 60/40 Split
SPX options are taxed using a 60/40 split: 60% of gains are treated as long-term capital gains (lower rate) and 40% as short-term capital gains (higher rate), regardless of how long you hold the position. SPY options are taxed as short-term capital gains if held less than one year.
Estimated Tax on SPY
Estimated Tax on SPX
Tax calculations are estimates based on the highest federal tax bracket (37% short-term, 20% long-term). Your actual tax rate may vary based on your income, state taxes, and other factors. Consult a tax professional for advice specific to your situation.
How the 60/40 Split Works
SPX options receive special tax treatment under Section 1256 of the tax code. Regardless of how long you hold the position, 60% of your gains are taxed as long-term capital gains (typically 15-20%) and 40% as short-term capital gains (typically 22-37%).
SPY options don't get this treatment. If you hold SPY options for less than a year, all gains are taxed as short-term capital gains at your ordinary income rate. This can mean paying 37% instead of the blended rate of around 23% with SPX.
Example: If you make $100,000 trading SPY options in a year, you might pay $37,000 in taxes (37% short-term rate). With SPX, you'd pay approximately $23,000 (blended 60/40 rate). That's $14,000 saved—just from choosing the right instrument.
Cash Settlement: Why It Matters
SPX options are cash-settled. SPY options can be physically settled, which creates risks and complications that can cost you money.
SPX: Cash Settlement
- ✓No exercise risk—cash is deposited automatically
- ✓No margin requirements for settlement
- ✓No shares to manage or sell
- ✓Simpler tax reporting
SPY: Physical Settlement Risk
- ✗ITM options can be exercised automatically
- ✗Requires margin to hold shares
- ✗Must sell shares manually (commissions)
- ✗More complex tax reporting
Real Example: The Exercise Problem
Let's say you buy 10 SPY 557c contracts for $0.50 each ($500 total). SPY closes at 559, so your contracts are $2 in the money. You're up $1,500.
With SPY: If you forget to close or your broker exercises automatically, you now own 1,000 shares of SPY at $557. That's $557,000 in stock. If you have a $5,000 account, your broker will likely close this immediately—possibly at a loss—or require margin you don't have.
With SPX: If SPX closes at 5590, your SPX 5570c contracts are $20 in the money. Cash is automatically deposited into your account. No shares, no margin, no hassle. Your $5,000 account becomes $6,500. Simple.
Broker Risk Management: The Hidden Cost
This is something most traders don't discover until it's too late. Brokers treat SPY and SPX options very differently, and it can cost you your biggest winners.
What Happens with SPY Options
Brokers Close Positions Early
Many brokers close SPY 0DTE positions in the last hour to manage their own risk. This is when 10x moves often happen. You lose the opportunity.
Brokers Block New Positions
Some brokers prevent opening new SPY 0DTE positions in the final hour. You can't enter even if you see a clear opportunity.
Exercise Risk Management
Brokers may close ITM SPY positions before expiration to avoid exercise risk. You might be forced out of a winning trade.
What Happens with SPX Options
Full Control Until Expiration
Brokers don't interfere with SPX positions. You maintain full control until expiration, allowing you to capture those final-hour moves.
No Exercise Risk for Brokers
Since SPX is cash-settled, brokers don't worry about exercise risk. They leave your positions alone.
Trade Until the Last Minute
You can enter and exit SPX positions right up until expiration. No artificial restrictions.
Personal Experience
I've had brokers close my SPY 0DTE trades during the last hour—the exact time when I've made some of my biggest gains. I've also been blocked from opening new SPY positions in the final hour when I saw clear opportunities.
With SPX, I've never had a broker interfere. I've been able to hold positions until the final minutes, capturing moves that would have been impossible with SPY. This alone has been worth thousands in additional profits.
Small Accounts: Why SPX is Better
If you're trading with a small account ($5k-$30k), SPX offers advantages that SPY simply cannot match.
The Leverage Advantage
With SPX, you can take far out-of-the-money positions that SPY won't allow. Here's a real example:
Scenario: $5,000 account, $500 risk allocation
SPX: Buy 50 SPX 5590c at $0.10 = $500 risk. If SPX hits 5590 at 3:55 PM, these might be worth $2. Sell for $10,000 - $500 = $9,500 profit.
SPY: Try to buy 500 SPY 559c at $0.01 = $500 risk. Your broker will reject the order or immediately close it. They won't risk letting you control $2.7 million worth of shares into the close.
With SPX, small accounts can take positions that would be impossible with SPY. The cash settlement means no exercise risk, so brokers don't interfere.
When SPY Might Make Sense (Rare Cases)
I want to be honest: there are a few scenarios where SPY might be preferable. But these are edge cases.
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Very Small Contract Sizes
If you need to risk less than $50 per trade, SPY's smaller contract sizes might be useful. But you're better off learning proper position sizing.
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Long-Term Holders
If you're holding options for more than a year, SPY gets long-term capital gains treatment. But for 0DTE trading, this doesn't apply.
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Broker Restrictions
Some brokers don't offer SPX options. In this case, you might need to use SPY. But consider switching brokers—the tax savings alone justify it.
Bottom Line: Why SPX Wins
For 0DTE trading, SPX is the clear winner. The tax advantages alone can save you $10,000+ per year. Add in cash settlement, better broker treatment, and small account advantages, and the choice becomes obvious.
SPX Advantages Summary:
- 60/40 tax split saves thousands in taxes
- Cash settlement eliminates exercise risk
- Brokers don't interfere with your positions
- No margin requirements for settlement
- Small accounts can take larger positions
- Simpler tax reporting
If you're currently trading SPY options, switching to SPX is one of the easiest ways to improve your bottom line. The same market exposure, better tax treatment, and fewer headaches.
Ready to Trade SPX Options?
Understanding the differences is just the start. Learn the complete SPX 0DTE trading system that takes advantage of these benefits.
Education, Not Advice: This content is for educational purposes only and does not constitute financial or tax advice. Tax rates and regulations may vary. Always consult with a qualified tax professional and financial advisor before making trading decisions. Past performance does not guarantee future results. Trading options involves substantial risk of loss.