Core: SPX (S&P 500 Index) and XSP (S&P 500 Mini)
The bulk of the journal's trades are built around SPX and XSP options. The reasons are structural:
- Liquidity. SPX and XSP options are the most liquid equity index options in the world. Tight bid/ask spreads, deep order books, and a dense expiration calendar (every business day in some cases) make entries and exits cheap.
- Cash settlement. Both settle to cash, not shares. No assignment risk on short positions, no risk of being put or called into a stock you didn't want.
- European exercise. SPX and XSP options cannot be exercised before expiration. This eliminates early-assignment risk on short options, which simplifies the management of credit spreads and iron condors.
- Tax efficiency. SPX options are taxed under Section 1256 — 60% long-term, 40% short-term capital gains regardless of holding period. This is a structural advantage over ETF options for active traders.
- Defined-risk strategies fit. Spreads, iron condors, butterflies, and ratio structures all work cleanly on SPX and XSP with a stable underlying and predictable behavior.
SPX vs. XSP — When to Use Which
SPX uses a $100 multiplier. XSP uses a $10 multiplier. The premium ratio is exactly 10:1. For a given strike, an XSP spread is 1/10th the notional of the equivalent SPX spread. XSP is used when the desired position size is between the SPX "round number" sizes — for example, a $1,500 max-loss target is awkward to build in SPX but natural in XSP. The journal uses both. The decision rule is mechanical: start with the desired risk in dollars, then pick the multiplier that produces the cleanest size. XSP is the precision tool; SPX is the workhorse. Most short-premium credit spreads are opened in SPX (cleaner fills, larger premium per contract) while long-dated defined-risk structures with smaller max-loss targets are opened in XSP (1/10th the notional, same P/L profile). The journal does not size by "number of contracts" — it sizes by "max loss in dollars" — so the SPX/XSP pick is a sizing decision, not a thesis decision.
Sector ETFs (Selective)
When relative-value opportunities arise, the journal may trade options on the 11 sector SPDR ETFs:
- XLK — Technology
- XLF — Financials
- XLE — Energy
- XLV — Health Care
- XLY — Consumer Discretionary
- XLP — Consumer Staples
- XLI — Industrials
- XLU — Utilities
- XLB — Materials
- XLRE — Real Estate
- XLC — Communication Services
Sector trades are usually directional plays (debit spreads, single-leg longs) where the thesis is a relative outperformance/underperformance call against SPX. They are smaller in size and less frequent than the index trades. Sector trades are sized to roughly 1/4 of an equivalent SPX position because the realized volatility of single-sector ETFs is higher than that of the broad index, and the journal wants the per-position risk to be comparable to the index book on a vol-adjusted basis.
Core vs. Single-Name Trades
The portfolio's core holdings are in index options: SPX/XSP (S&P 500 large-cap), RUT (Russell 2000 small-cap), and XND (Nasdaq-100). The thesis for the bulk of the book is a defined-risk view on broad-market direction or volatility regimes, expressed through short-vertical and long-condor structures on these indices.
A small percent of the portfolio does trade individual stocks — typically asymmetric structures on names with a specific catalyst (sector-wide memory-cycle plays, post-implosion mean-reversion setups, low-priced speculative names). Those single-name trades carry higher idiosyncratic event risk (earnings, M&A, management action), higher IV and skew instability, less liquid option chains in many cases, and American-style exercise (early assignment risk). They are sized accordingly — capped at a fraction of NLV per position — and never the basis for a steady broad-market-overlay thesis.
Volatility as an Instrument
VIX options and VXX are referenced in the methodology and the playbook for hedging and for trading volatility regimes, but they are not a primary instrument. VIX options have their own behavioral peculiarities (contango, mean reversion) and are treated as a separate chapter in the playbook. The journal uses VIX-related products only as a hedge against existing index positions, never as a standalone directional bet. The reasoning: VIX is a derivative of expected future realized volatility, not a tradable instrument in the same sense as SPX. Trading VIX directionally is a bet on the behavior of other traders' expectations, which adds a layer of indirect reasoning that the journal prefers to avoid in the core book.
Reading the Trade Log by Instrument
The trade log is sortable by ticker. The distribution over the journal's history usually shows 60-70% SPX/XSP, 10-15% RUT, 5-10% sector ETFs, and 5-15% single-name trades. A reader who wants to evaluate the journal's methodology on a specific instrument should filter the trade log to that instrument and review the realized outcomes across the relevant strategies. The journal does not publish a per-instrument hit-rate summary — the trade log is the source of truth, and any summary statistic the journal publishes is reproducible from the trade log by any reader who has the same data.