How to Buy SPY Puts • Easy Steps • Benzinga

It is often said that the market takes a step up and takes the elevator down. Corrections can be quick, serious, but also profitable.

Just as there are only two ways to end up with more money (making or spending more and losing less), there are two reasons to bet on the fall of the market. Either to hedge your bullish bets, or to take advantage of the decline.

This guide will show you how to buy SPY holes. And if you want to learn more, consult our guide on how to trade momentum with options.

SPY ETFs Explained

SPDR S&P 500 ETF, often referred to as the ticker SPY, is an exchange traded fund that follows the Standard & Poor’s 500 Index (S&P 500).

This index includes 500 large and mid-cap stocks in various sectors, but overweight in technology (27%), with the largest individual stocks, including Apple Inc. (6.01%), Microsoft Corp (5.45%) and Amazon.com Inc. (4.09%).

SPY repeats the performance of the S&P index. Instead of buying 500 individual shares, you can buy a unit of SPY. So your exposure to the market will be the same, but your fees will be lower. SPY fees are very low at 0.095% annually.

Alternatives to SPDR S&P 500 ETF (SPY)

Tracking a stock index is not exactly rocket science; so, competition is high.

The most important alternatives are:

• Shares of Core S&P ETF (IVV): Has a expense ratio of just 0.04% and offers daily updates. Other benefits include a friendly tax structure and high liquidity.
• Vanguard S&P 500 ETF (FET): It has been available since 2010 and is one of the cheapest (0.03%) and most accurate ETFs.
• SPDR S&P 500 ETF (SPLG) Portfolio: Another retail-friendly alternative at 0.03%, and it is rebalancing quarterly.

Read the guide to the best SP500 ETFs for the full overview.

Best Online Brokers for ETFs

Investing in ETFs is one of the easiest ways to invest. Check out our list of recommended brokers:

History of SPY

As the oldest ETF listed by the United States, SPY was launched in January 1993. Launched by State Street Global Advisors, it is listed on the NYSE Arca Stock Exchange. Since the

started, it checked the performance of the S&P 500 with deviations of less than 0.15%.

As of April 2021, it has $ 352.86 billion in assets under management. The average daily daily volume of 30 days over the past five years was 76.8 million shares.

Difference between SPX and SPY – Option Trading

The following table shows the main differences between the SPX and SPY options.

	SPX	SPY
Style	European (is only exercised on the expiration date)	American (to be exercised any time prior to expiration)
Dividend	No	Quarterly
Settlement	Cash	Shares
Decay	At the end of business on expiration Friday, except for the 3rd Friday.Options with 3rd Friday expiration stop trading 1 day before.	At the end of business on expiration Friday (3rd Friday)

It is also important to note that just like SPY lists for 1/10 of the SPX index value, SPY options trade for about 1/10 of the price of SPX options.

While SPX options have an expiration date and favorable tax treatment, SPY options have an advantage in dividends, settlement, strike and margin. SPY offers $ 1 wide strikes and since you own a real asset, you can use all the options strategies.

Why SPY Puts Are So Expensive

The main reason why the Puts are more expensive than the Calls is due to the demand differences. If measured at the same distance (equally far), there is much higher demand outside the money and therefore higher prices than calls outside the money. For a comprehensive outlook, check out our position against calls.

In the optional trader jargon, this is classified as implied volatility (IV). Implied volatility is the uncertainty associated with the underlying asset of an option.

Implied volatility and the skewed price; Source: Science Direct

As the demand for an option increases, so does the implied volatility, and so does the price.

Historically, ATM wells were not expensive before the historic collapse of 1987 raised their price. Now everyone wanted insurance against possible serious price drops. Read our podcast episode for more information on how to protect your portfolio from a bear market.

Strategies to shorten the S&P 500 index (SPY)

Take a look at some strategies to shorten the S&P 500 Index (SPY).

Inverse S&P 500 Exchange Traded Funds (ETFs)

Inverse ETFs offer a simple solution if you do not want to hold short positions. You simply buy a reverse ETF as it rises as the underlying asset declines. These ETFs are composed of different derivatives.

The most popular are ProShares Short S&P 500 (SH) and Direxion Daily S&P 500 Bear (SPDN). Although these 2 are designed to offer 1x reverse exposure to SPY, there are ETFs for 2x or even 3x reverse exposure. Yet the use of leveraged ETFs requires strong risk management because compilation works both ways.

Inverse S&P 500 mutual funds

Also known as mutual funds – these funds consist of a short portfolio that covers

an entire index. In this case, it’s 500 shares of the S&P 500. In some cases,

it can also be actively managed, with portfolio managers running

certain stocks overweight / underweight to increase returns.

If you hedge the exposure to the entire index, you may be sticking to the options for equal weight. An example is Rydex Inverse S&P 500 Strategy Fund (RYUHX).

Put options

You can buy a put option for SPX or SPY. But you may want to stick with the ETF because of the face value, the offer price and the liquidity.

SPY option has a lower nominal value (1/10^de) as a standard SPX contract that offers more flexibility, a tighter spread between bid and offer – making it more price efficient. It is also the more liquid of the 2.

Index futures contracts

Originally, futures contracts were created as a price guarantee for commodity producers. Due to their derivative nature, they have a speculative application in a variety of markets, including stock indices.

Index futures contracts are settled in cash – when you buy an index futures, you make a trading agreement of a specific index at a specific price on a specific date.

The main benefits of index futures are liquidity, standardization and leveraged financing. The standard size of the S&P 500 futures contract is 250 times the value of the S&P 500. The smaller contract, E-mini, is only valued 50 times, making it a popular choice for retailers due to lower margin requirements.

SPY ETF’s top 7 holdings

SPY ETF is weighted by a market capitalization, and the largest equities therefore have the largest impact on the performance and volatility of the index.

As of April 1, 2021, the top 7 holdings account for 22.35% of the ETF.

Name	Shares held	Weight
Apple Inc.	162,121,170	5.71%
Microsoft Corporation	77,483,540	5.37%
Amazon.com Inc.	4 397 235	3.98%
Facebook Inc. Class A	24 711 902	2.11%
Alphabet Inc. Class A	3,089,538	1.88%
Alphabet Inc. Class C	2 961 222	1.81%
Tesla Inc.	7 888 655	1.49%

Contrary to popular belief, pebbles do not always go up. When it goes down, it is often sudden, violent and potentially painful for your portfolio. If you have a long S&P exposure (especially if you are overweight in the above stocks), you can have peace of mind if you have a hedging position.

Be careful not to overdo it.

As a legendary fund manager, Peter Lynch said: ‘Much more money has been lost by investors preparing for corrections, or trying to expect corrections, than they have corrected themselves.. ”

Frequently Asked Questions

Is SPY an index fund?

1

Is SPY an index fund?

asked 2021-04-10

Stjepan Kalinic

1

SPY is an exchange traded fund (ETF) that mimics the performance of an index fund (S & P500) at a very small amount.

Answer link

answered 2021-04-10

Benzinga

Is SPY a safe investment?

1

Is SPY a safe investment?

asked 2021-04-10

Stjepan Kalinic

1

SPY can be a great investment for long-term investors. The yield since the beginning (1993) was 10.05%.

Answer link

answered 2021-04-10

Benzinga