![]() Many investors chose to invest in SPY or similar ETFs because they can own shares in all of the companies included in the S&P 500, at a fraction of the cost that they would have to pay if they purchased the stocks individually. In the case of SPY, the ETF is designed to track the Standard & Poor’s 500 (S&P 500), an index containing the 500 largest publicly-traded companies in the U.S. An ETF is a portfolio of stocks, bonds, and other securities that is designed to track a specific index, commodity, or sector of the economy. What is SPY? □ĭeveloped in 1993, SPY is the acronym for the SPDR S&P 500 ETF Trust – widely considered to be the first exchange-traded fund (ETF) ever created. Options trading can help investors hedge their portfolios against losses, generate income, or simply speculate on price changes in the market. There are many different reasons why an investor might choose to trade options. If we are interested in selling shares at a certain price, we would look for put options. If we are interested in buying shares at a certain price, we would look for a call option. More importantly, the optional nature of these contracts allows us to cap our potential losses, since we can always let an options contract expire if the terms are no longer profitable for us.ĭepending on the type of option selected, investors can either buy or sell shares of an underlying asset. As investors, we benefit because options contracts allow us to buy or sell securities without the risk of price changes. Options contracts are also time-limited and come with a predetermined end date, typically called the expiration date.Īn options contract allows the investor the opportunity to “exercise” or fulfill the contract, but does not require them to do so. Options are contracts that allow an investor the right to buy or sell a security within certain parameters, stipulating a set price that the asset can be purchased or sold for, known as the “strike price”. Join us, as we answer the important questions that every options trader needs to know, from the basics of options trading to whether SPX or SPY options make more sense for your unique investment context.įirst: A Refresher on Options Trading □□ ![]() Luckily for us, options trading allows us to make investments for either outcome AND can help us cap our losses if our predictions go awry. ![]() In this article, we are going to focus specifically on SPX and SPY options, two of the most popular options to trade on the S&P 500, an important index fund that many investors use as a shorthand for the overall stock market.Īlthough the index has had a tough year – losing 18.4% of its value year to date – experts disagree on whether the S&P 500 has further to fall or can only go up from here. This simple and powerful tool can be part of a balanced investment strategy, particularly when the markets are volatile or entering bear territory. While trading options can get complicated, the core concept is not the “option” to buy or sell an asset at a predetermined price. This type of trading has its own language that can make it super challenging for beginners to figure out exactly what people are even talking about – what on earth is the “ex-dividend day” and why, precisely, do I need to care about it? Options trading can feel pretty intimidating for newcomers. Click here for a full list of our partners and an in-depth explanation on how we get paid. Our company, Tokenist Media LLC, is community supported and may receive a small commission when you purchase products or services through links on our website. Neither our writers nor our editors receive direct compensation of any kind to publish information on. SPY Explained (2023): Learn Which is Better for You ✅ NewsletterĪll reviews, research, news and assessments of any kind on The Tokenist are compiled using a strict editorial review process by our editorial team.
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