At Put Paradise, we have focused on one simple strategy: generating consistent income through high-probability Put Credit Spreads while controlling risk. We are not trying to hit home runs. We are not trying to turn $5,000 into $5 million this year. We are trying to build a repeatable process that compounds over time while avoiding the emotional chaos that destroys most traders. Over the years, one thing has become increasingly clear to me: small structural advantages matter far more than most people realize. The difference between a struggling options trader and a consistently profitable trader is often not some magical indicator or secret setup. More often than not, it is about efficiency. Reducing friction. Improving execution. Simplifying management. Keeping more profits. Thinking like a professional and taking money from the gamblers. That realization is exactly why I have transitioned my trading away from SPY, QQQ, and IWM and toward SPX, NDX, and RUT. At first glance, most people assume these are basically the same products. On their face, they are very similar: SPY tracks the S&P 500 while SPX is the S&P 500 index itself; QQQ tracks the Nasdaq-100 while NDX represents the Nasdaq-100 index; IWM tracks the Russell 2000 while RUT is the Russell 2000 index. The charts look identical. The price action behaves the same. All the option chains are liquid. The premiums are proportional. The Put Credit Spread strategies behave exactly the same way. So naturally, you may be asking, why switch?
Well, I’ve found that these index options provide a great upgrade due to:
- Lower commission drag
- Better tax treatment
- Cash settlement
- No early assignment risk
- Excellent liquidity
- Cleaner position management
- Better scalability
Much of this decision is account size dependent and I will continue to comment on, post about, and provide insight on both versions of these products. But at a certain point, these simply become better vehicles as your account size grows. Once you understand the advantages of trading the index products instead of the ETFs, it becomes very difficult to go back. These are the kinds of improvements that are hidden and may not seem dramatic on a single trade, but over hundreds or even thousands of trades, the advantages begin compounding in a very meaningful way, which I’ll review in this article.
The first thing that immediately stands out is the size difference between the products. SPX, NDX, and RUT are much larger underlyings. Roughly speaking, one SPX contract represents 10 SPY contracts. The same concept applies with NDX versus QQQ and RUT versus IWM. What this allows me to do is maintain very similar market exposure while trading far fewer contracts. For example, when I was trading predominantly SPY Put Credit Spreads in the beginning, I was trading in 1 lots, then 2, then eventually 5, etc. But as my account has grown, my lot sizes have grown proportionately and now I usually need to trade in 15 lots using the $5 wide spreads to get the returns that I am looking for. Today, I am allocating around $7,500 buying power to each trade typically. So for SPX, I can trade 3 contracts using $25 wide spreads and still achieve a very similar overall strategy and risk profile. In SPY, I was typically risking about $500 max loss per lot, now, in SPX, I’m around $2,500 max loss per lot. But because the SPX contracts are so much larger, I only need 3 contracts instead of 15 to get to my nearly $7,500 buying power reduction each week.
That changes the entire experience of managing the trade.
Instead of paying commissions and fees on 15 contracts entering and exiting, I am paying commissions and fees on only 3 contracts. Depending on which brokerage I am using, that really adds up as the reduction in commission drag becomes very significant. A lot of traders underestimate how much commissions and fees quietly eat into long-term profitability. I’m trying to reduce unnecessary friction because every little percentage point matters over time. Even if your broker offers relatively low commissions, active spread traders are constantly opening and closing multiple legs and some brokers charge you per lot size. Those fees accumulate faster than most people realize. Reducing lot quantity while maintaining similar risk exposure is one of the cleanest ways to improve efficiency without changing the strategy itself.
But the commission savings are only part of the story. The tax advantages may be even more important. One of the biggest reasons I moved to SPX, NDX, and RUT is because these are broad-based index options that qualify for Section 1256 tax treatment. SPY, QQQ, and IWM generally do not receive the same treatment. What that means is that index option profits are taxed under the famous 60/40 rule. Sixty percent of gains are treated as long-term capital gains while forty percent are treated as short-term gains regardless of how long the trade was actually held. That is an enormous advantage for traders with significant profits.
We hold the Put Credit Spreads for only weeks, not years, so under normal circumstances, nearly all of those profits would normally be taxed at short-term ordinary capital gains rates. But index products change that equation in a very favorable way. Now obviously, I am not a tax professional. Everyone’s tax situation is different and this is not tax advice, but structurally speaking, 60 percent of gains taxed under long-term rates is very significant because short term capital gains rates are much higher. If you are actively trading throughout the year, keeping more of your profits instead of sending them away in taxes becomes a very meaningful edge.
Another major advantage of SPX, NDX, and RUT is that they are cash settled. So they are European-style options rather than American-style options like SPY, QQQ and IWM. That distinction may sound technical, but it has very real practical benefits for spread traders. SPX, NDX and RUT cannot be exercised early. That means you eliminate the risk of unexpected early assignment. If you are like me, then you have probably experienced the frustration of waking up to surprise assignments, weird stock positions, or unexpected margin changes. Particularly early on in 2020 and 2021, I was struggling with assignment frequently. Sometimes it happens around dividends. Sometimes it happens during volatile moves. Sometimes it happens for reasons that simply feel completely random. Now in reality, if you trade using the Put Path Options Trading System, you will likely never get assigned because we close these positions well before they get In The Money, but it theoretically could happen during a strong down move. With SPX, NDX and RUT, that entire category of headaches disappears. This is something that I find incredibly valuable in that it simplifies your trading life. As you know, I’m all about trying to “Transform Your Life By Simplifying The Way You Trade”, so this stress reduction is exactly what we look for. The fewer operational surprises you have to deal with, the more mental energy you can devote toward actual decision-making and risk management, or just enjoying your life!
The cash settlement process also makes everything cleaner. Since SPX, NDX, and RUT are cash-settled products, you are not dealing with actual delivery of shares. You are simply credited or debited the appropriate cash amount at settlement. Easy as pie. That means no accidental stock positions. No scrambling to close shares. No after-hours panic trying to figure out what happened. The trade simply settles cleanly and efficiently. No Worst Case Scenario. Again, these may seem like small details individually, but every little simplification helps over the long run.
One thing that surprised me when I first transitioned into these names was that the overall premium is basically equivalent. If I trade SPX in a 3 lot or SPY in a 15 lot, the total premium is nearly equivalent. In SPY/SPX, you should be getting a “normalized” $0.42 to $0.45 credit per lot in either name whether you are going $5 wide versus $25 wide. For example, if your target is $0.45 for SPY in a $5 wide spread, you should be able to get $2.25 in an SPX $25 wide spread. Now, I also like the additional width. Since you have a $25 wide trade you have much more room before your long Put gets breached. This actually helps you close the trades at the 200% max loss level more efficiently compared to the $5 wide trades. Also the index products are very liquid. SPY, QQQ and IWM are extraordinarily liquid and popular with retail traders, but SPX, NDX and RUT are on comparable level with very heavy institutional participation. In practice, I have found that I can get fills every bit as good as the ETF equivalents. The bid-ask spreads are still tight (particularly when you factor in that they are 10x larger), the markets move efficiently, and the execution quality has been excellent. These are some of the most actively traded option products in the world.
Lastly, there is also a psychological benefit to trading fewer contracts that I think many people tend to underestimate. Managing 3 contracts, or only 1 for NDX just feels easier. So since NDX is now nearly 29,000, they tend to only offer $100 wide spreads so I trade NDX in 1 lots. With smaller lots, decisions feel calmer. Position management becomes less stressful, and I find that reducing emotional noise is incredibly important. During fast-moving market conditions and heightened volatility, the last thing I want is complexity. I would rather manage a smaller number of larger positions than juggle dozens of contracts. Partial fills can complicate matters as well. So if we have smaller total contracts, then partial fills become less of an issue. Simplicity improves clarity, and clarity improves decision-making.
None of this means the strategy itself has changed. The core Put Paradise philosophy remains exactly the same as it has always been. We are still selling premium with high probability of profit. We are still using defined-risk Put Credit Spreads. We are still prioritizing consistency over gambling. We are still respecting risk management above all else. My underlyings have evolved slightly, but the process remains identical. That distinction is extremely important because I don’t want you to think I’m pulling a bait and switch or abandoning a strategy in search of some magical new system. That is not what this is about at all. This is not reinvention; this is a slight tweak to enhance optimization. I hope you can continue to evolve over time and refine your system. Of course, I recommend incorporating the Put Path, but you do you. Even if you only trade like this part time or sometimes, it should be profitable for you which helps. Who knows, maybe some day you will go full boar with the Put Path. Ultimately, I focus on building better processes, which is exactly what this move from SPY to SPX, from QQQ to NDX, and from IWM to RUT represents for me. It is simply the next evolution of the Put Paradise approach. The goal is to operate more efficiently while maintaining the same disciplined, probability-based framework that has always been at the core of the Put Path. Remember, options trading is better when it’s not done in isolation: leave a comment below with your thoughts or questions, and let’s keep the conversation going!
Leave a Reply