Contributor, Benzinga
November 8, 2023

The stock market is volatile enough, but some traders want extra volatility through options. SPY puts allow traders to benefit from short-term downward pressure in the market. Some traders use these derivatives to hedge their portfolios while others use them to speculate the market's future movements.

Buying SPY puts is a bit more complex than buying SPY. You have to know additional details, such as strike prices, expiration dates, and other factors before buying put options. This guide will show you how to buy SPY puts. And if you are looking to learn more check our guide on how to trade momentum with options.

SPY ETFs Explained

SPDR S&P 500 ETF, often referenced by the ticker SPY, is an exchange-traded fund that tracks the Standard & Poor 500 Index (S&P 500).

This index includes 500 large and mid-cap U.S. stocks in multiple sectors but overweight in technology.

SPY replicates the performance of the S&P Index. Instead of buying 500 individual shares, you can buy a unit of SPY. Thus, your market exposure 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)

Investors can choose from many stock indices that follow the S&P 500.

The most prominent alternatives are:

  • Shares Core S&P ETF (IVV): Has an expense ratio of just 0.04% and provides daily updates. Other advantages include a friendly tax structure and high liquidity.
  • Vanguard S&P 500 ETF (VOO): Available since 2010, it is one of the cheapest (0.03%) and most accurate ETFs.
  • SPDR Portfolio S&P 500 ETF (SPLG): Another retail-friendly alternative at 0.03%, it is rebalanced quarterly.

For the full overview, check out our guide to the Best SP500 ETFs.

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 U.S.-listed ETF, SPY was launched in January 1993. It was introduced by State Street Global Advisors and listed on the NYSE Arca exchange under the ticker SPY. Since the

start, it has been tracking the performance of the S&P 500 with deviations of less than 0.15%.

As of November 2023, it has $409 billion in assets under management. 

Difference Between SPX And SPY – Options Trading

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

StyleEuropean (exercised only at expiration date)American (exercised at any time before expiry)
 ExpiryAt the close of business on expiration Friday, except for the 3rd Friday.Options with 3rd Friday expiration stop trading 1 day before. At the close of business on expiration Friday (3rd Friday)

It's also important to note that just like SPY lists for 1/10th of the SPX index value — SPY options trade for approximately 1/10th of the price of SPX options.

While SPX options have an expiry advantage and favorable tax treatment, SPY options have an advantage in dividends, settlement, strike and margin. SPY offers $1 wide strikes.

Why SPY Puts are So Expensive

The main reason why the Puts are more expensive than the Calls is due to demand differences. When measured from the same distance (equidistant), out-of-the-money puts are in much higher demand and therefore higher priced than out-of-the-money calls. For a comprehensive outlook, check out our take on puts vs calls.

In the options trader jargon, this is classified as Implied volatility (IV). Implied volatility is the uncertainty related to an option's underlying asset.


Implied volatility and the price skew; Source: Science Direct

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

Historically, OTM puts were not expensive until the historic crash of 1987 caused their price to rise. Now everyone wanted to have insurance against potential severe price declines. For more information check out our podcast episode on how to protect your portfolio from a bear market.

Strategies to Short the S&P 500 Index (SPY)

Take a look at a couple of strategies to short the S&P 500 Index (SPY).

Inverse S&P 500 Exchange Traded Funds (ETFs)

Inverse ETFs provide a simple solution if you do not want to hold short positions. You simply buy an inverse ETF as it goes up as the underlying asset goes down. These ETFs are constructed using various derivatives.

The most popular include ProShares Short S&P 500 (NYSEARCA:SH) and Direxion Daily S&P 500 Bear (NYSEARCA:SPDN). While these two are designed to provide 1x inverse exposure to SPY, there are ETFs for 2x or even 3x inverse exposure. Yet, using leveraged ETFs requires strong risk management due to the fact that compounding works both ways.

Inverse S&P 500 Mutual Funds

Also known as bear market mutual funds — these funds consist of a short portfolio that covers

an entire index. In this case, it is 500 stocks from the S&P 500. In some instances,

these can also be actively managed, with portfolio managers going

overweight/underweight certain stocks in order to increase returns.

If you are hedging exposure to the entire index, you might stick with the equal-weight options. An example would be the Rydex Inverse S&P 500 Strategy Fund (MUTF:RYUHX).

Put Options

You can buy a put option for either SPX or SPY. But you might want to stick with the ETF due to notional value, strike price offer and liquidity.

SPY option holds a lower notional value (1/10th) than a standard SPX contract offering more flexibility and a tighter spread between the bid and offer — making it more price efficient. It's also the more liquid of the 2.

Index Futures

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

Index futures are cash-settled — when you buy an index future you are making a trading agreement of a specific index at a specific price on a specific date.

The main advantages of index futures are liquidity, standardization and leverage. 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 valued at just 50 times — making it a popular choice for retail traders due to lower margin requirements.

SPY ETF's Top 7 Holdings

SPY ETF is weighted by a market cap. Thus the largest stocks have the biggest impact on the performance and volatility of the index.

As of November 2023, the top 7 holdings consist of over 25% of the fund's total assets.

NameShares HeldWeight
Alphabet Class A56,266,2592.11%
Meta Platforms Class A24,779,0131.93%
Alphabet Class C56,266,2591.82%

A Tool for Insurance and Speculation

Stocks can go up for quite a while but you have to be ready for the corrections. If you have long S&P exposure (especially if overweight in the above-mentioned stocks), having a hedge short position can buy you peace of mind.

Yet, be careful not to overdo it.

As a legendary fund manager, Peter Lynch said, "Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves."

Frequently Asked Questions


Is SPY an index fund?


SPY is an exchange-traded fund (ETF) that mimics the performance of an Index fund (S&P500) for a very small fee.


Is SPY a safe investment?


SPY can be a good investment for long-term investors. Its return since the start (1993) has been 10.05%.


Can you make money with SPY puts?


Traders can make money with SPY puts if they hold onto these derivatives while the market falls. However, SPY puts are riskier than holding SPY for the long run.