How does SPX work?

SPX Options are financial instruments that are traded on exchanges and are of the European-style exercise type. These options are settled in cash and their value is derived from the S&P 500 Index.

The S&P 500 Index, also known as the Standard & Poor's 500, is a highly regarded benchmark for the performance of the US stock market. It comprises 500 of the largest and most influential companies across various industries.

The index is capitalization-weighted, meaning that the companies with the largest market capitalization have a greater impact on the overall index value. This ensures that the index accurately reflects the overall health of the US economy.

SPX Options provide investors with a versatile tool for hedging their portfolios against market volatility or for speculating on the future direction of the S&P 500 Index.

By purchasing a call option, an investor is betting that the S&P 500 Index will rise above a specific strike price by the expiration date. Conversely, a put option is a bet that the index will fall below the strike price.