Is XSP a viable trading product vs. SPY?

[Steve G]

Many professional traders (myself included) trade the SPX index as our main trading vehicle for a number of reasons including the fact that it is CASH SETTLED (so no assignment to deal with) AND it has a favorable Tax status in the US AND it is a larger notional product so you have to trade fewer contracts to get size as opposed to SPY.XSP was introduced a while back with the same characteristics of being cash settled and tax advantaged and it is 1/10 of SPX (so essentially the same size as SPY), BUT - is it a viable trading vehicle at this point????

My very superficial view in this video where I compare 2 very similar trades in SPY to XSP tell me the answer NO (at least for me).

 

[DaveN]

Thanks for sharing, @Steve G ! I stay exclusively in SPX, but I've wondered about XSP. Liquidity and volume, not so much it seems. I don't know the pricing, but I expect that commissions and fees would be much higher in percentage terms as well.

 

[Steve G]

Yes, I believe commissions are essentially the same, so you would 10X your commissions to equal 1 SPX. The ONLY reason someone might consider it would be if they were learning, or their account size could not handle SPX. If you are an experienced SPX trader, there would be NO reason to consider shifting from what I can see.

 

[DaveN]

Yes, I believe commissions are essentially the same, so you would 10X your commissions to equal 1 SPX. The ONLY reason someone might consider it would be if they were learning, or their account size could not handle SPX. If you are an experienced SPX trader, there would be NO reason to consider shifting from what I can see.

Additionally, I can see that if someone has a hedging strategy using SPX options, the XSP might offer a finer granularity, e.g. a 6-lot XSP order instead of a 1-lot SPX Put or using a long Call in something like an M3 equivalent trade in SPX if someone didn't want to put the long hedge quite so far away from the money.

But commissions and fees as well as liquidity considered, it doesn't sound feasible or useful as part of an SPX strategy.

 

[JerseyJIm]

Yes, I believe commissions are essentially the same, so you would 10X your commissions to equal 1 SPX. The ONLY reason someone might consider it would be if they were learning, or their account size could not handle SPX. If you are an experienced SPX trader, there would be NO reason to consider shifting from what I can see.

Have not verified this, but I heard that CBOE does not charge fees on the smaller products like XSP, in order to spur increased usage.

 

[status1]

I traded XSP last year and there is no SPX fee so it's just the option fee of $0.66 per contract for TOS and I did not notice any problem with liquidity most of the time I get filled right away or maybe have to add 1 or 2 pennies if I am impatient and want to fill right away

 

[Steve G]

I traded XSP last year and there is no SPX fee so it's just the option fee of $0.66 per contract for TOS and I did not notice any problem with liquidity most of the time I get filled right away or maybe have to add 1 or 2 pennies if I am impatient and want to fill right away

I admittedly have not traded it long enough to verify fill issues aside from the one trade I ran side by side with SPY - BUT what I did see is that on a crazy market swing day, the SPY P&L for my butterfly might waver up and and $100, while the XSP P&L could waver over $1,000 (and this was only on a 10 lot 10pt wide wing trade). This crazy variance was showing as a result of the very wide spreads that would pop up in XSP.