The S&P 500 and its Many Derivations

By Kirsteen Mackay

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The S&P 500 index has a myriad of associated derivatives and products. From futures contracts like eMini to ETFs like SPY and mutual funds such as the Fidelity S&P 500 Index Fund.

Shiny 3D Lettering depicting S&P500 on a wooden floor.
The S&P 500 is an index with numerous financial products based on it.

The S&P 500 index, as one of the most widely followed equity indices in the world, has several derivative products associated with it. These derivatives allow investors to gain exposure to the index in various ways. Here are some of the primary derivatives of the S&P 500:

The S&P 500 (INDEXSP: .INX)

The S&P 500, or simply the S&P, is a stock market index that measures the stock performance of 500 large companies listed on stock exchanges in the United States. It's one of the most widely followed equity indices in the world. Its purpose is to serve as a benchmark for the overall U.S. stock market and the U.S. economy.

Futures Contracts:

eMini S&P 500 (CME) Continuous

This is a popular futures contract that tracks the S&P 500 index. The eMini is traded on the CME (Chicago Mercantile Exchange). 

eMini S&P 500 futures contracts are financial derivatives that allow investors to speculate on the future price of the S&P 500 index. These contracts are standardized and are traded on futures exchanges. Investors use them for hedging and speculative purposes. They can be physically settled or cash settled.

Standard S&P 500 futures (CME)

These are larger than the eMini contracts and are often used by institutional investors.

Options Contracts

S&P 500 Index Options (SPX)

The SPX is an options contract traded on the CBOE (Chicago Board Options Exchange).

SPX options are based on the S&P 500 Index and are settled in cash. Unlike options on individual stocks, SPX options are based on the index as a whole, which means investors can't exercise them to acquire the underlying assets. Instead, they are cash-settled on expiration.

The purpose of SPX options is to provide a way for investors to trade the overall direction of the stock market (or hedge their overall portfolio) without buying or selling all 500 stocks in the index. They can be used for a variety of strategies, including hedging, income generation, and speculation on market direction.

S&P 500 ETF Options (SPY)

Options contracts based on the SPDR S&P 500 ETF Trust.

Exchange Traded Funds (ETFs)

SPDR S&P 500 ETF Trust (SPY)

SPY is an ETF that tracks the S&P 500 index and is traded on the NYSE Arca exchange. It aims to provide investment results that, before expenses, correspond generally to the price and yield performance of the S&P 500 Index. The SPY ETF allows investors to gain exposure to the performance of the S&P 500 without buying each individual stock. It's a popular way for individual investors to invest in the broad U.S. stock market.

iShares Core S&P 500 ETF (IVV)

Another ETF that tracks the S&P 500, managed by BlackRock.

Vanguard S&P 500 ETF (VOO)

An ETF by Vanguard that also tracks the S&P 500.

Mutual Funds

There are numerous mutual funds that aim to replicate the performance of the S&P 500. One of the most notable is the Vanguard 500 Index Fund (VFIAX). 

Fidelity S&P 500 Index Fund

Fidelity's S&P 500 Index Fund is a mutual fund. It pools together money from multiple investors to purchase a diversified portfolio of stocks that mirror the holdings and performance of the S&P 500 index.

Investors often consider this fund as a way to gain broad exposure to the U.S. equity market. With its low expense ratio, the fund offers a cost-effective method for individuals to invest in a diversified portfolio of large-cap stocks. By tracking the S&P 500, it provides a straightforward approach for those looking to match the market's returns.

Schwab S&P 500 Index Fund

Schwab’s S&P 500 Index Fund is also a mutual fund. It allows investors to gain broad exposure to the U.S. equity market by investing in a diversified collection of large-cap stocks. With its commitment to low fees, the fund offers an economical way for individuals to access the returns of the broader market. By mirroring the S&P 500, the fund provides an uncomplicated investment strategy for those aiming to match the market's overall performance. 

Structured Products

Various financial institutions offer structured products linked to the performance of the S&P 500. These can include notes, certificates, and other complex financial products.

Leveraged and Inverse ETFs

Products like the ProShares Ultra S&P500 (SSO) aim to deliver twice the daily performance of the S&P 500.

Conversely, inverse ETFs like the ProShares Short S&P500 (SH) aim to deliver the opposite of the daily performance of the S&P 500.

Volatility Products:

The CBOE Volatility Index (VIX), often referred to as the "fear index," is derived from the implied volatility of S&P 500 index options. It represents the market's expectation of volatility over the next 30 days.

These are just some of the primary derivatives and products associated with the S&P 500. Each offers a unique way for investors to gain exposure to the index, hedge their portfolios, or speculate on market movements.

What is the Difference Between .INX and SPX?

While the S&P 500 (INDEXSP: .INX) represents the actual index of 500 large U.S. companies, the SPX represents options contracts based on that index. The main difference between them is the type of financial instrument: one is an index, and the other is an options contract based on that index.

What is the Difference Between SPX and eMini? 

The SPX and the eMini S&P 500 (CME) Continuous are not the same. They are both financial instruments related to the S&P 500 index, but they serve different purposes and have distinct characteristics.

While both SPX and the eMini S&P 500 are related to the S&P 500 index, the SPX is an options contract traded on the CBOE, and the eMini is a futures contract traded on the CME.

Each instrument offers a different way to gain exposure to the U.S. stock market and the performance of the S&P 500.

What is the Difference Between SPY Options and SPY ETF?

It can be confusing to see ‘SPY’ mentioned in relation to Options or an ETF. The SPY Options contract is based on the SPDR S&P 500 ETF Trust which has the ticker symbol ‘SPY’.

SPY Options offer investors and traders a versatile tool to hedge, speculate, or generate income based on the performance of the S&P 500 index through the SPY ETF. They provide the flexibility of options trading combined with the broad market exposure of the S&P 500.

With the SPY ETF risk is limited to the amount invested while SPY Options can offer higher leverage, meaning higher potential returns, but also higher potential losses. The maximum loss for a buyer of an option is the premium paid.

While both the SPY ETF and SPY Options are related to the S&P 500 index, the ETF represents actual ownership in the underlying assets, whereas the options are contracts that give the right to buy or sell the ETF at a set price.

What is the Difference Between SPY and SPX?

SPY and SPX represent different financial instruments. The SPX refers to the S&P 500 Index itself, a benchmark index comprising 500 of the largest publicly traded companies in the U.S. It represents the stock market's performance and is used as a gauge for the overall health of the U.S. equity market.

On the other hand, the SPY is an exchange-traded fund (ETF) that mirrors the performance of the S&P 500 Index. Investors can buy and sell shares of SPY on stock exchanges, much like they would with individual stocks.

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Author: Kirsteen Mackay

This article does not provide any financial advice and is not a recommendation to deal in any securities or product. Investments may fall in value and an investor may lose some or all of their investment. Past performance is not an indicator of future performance.

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