I've noticed that whenever I open credit spreads on spy and spx with the same exact deltas, that the premium received is always heavily skewed towards spx..
For example if I collect a .20 credit on spy for a 10 delta call credit spread.. You'd assume spx would provide a 1.00 credit for a 10 delta call credit spread.. Assuming the tightest hedge was used, ($1 wide for spy and $5 for spx) but it's usually offering 1.25-1.50 in credit instead.. about 25%! + extra premium received relative to spy for the same delta risk. My question is why?
I'm assuming it has to do with the fact that the distance between the hedged short and long isn't equal for both underlyings since spy 740 is 0.68% in distance from 745 but on spx, 7450 is 0.34% from 7455..... Buttt If I were to make the spx hedge $10 wide instead of $5, then the distance between the short and long would match 0.68% similar to spy but now the max risk and wings for spx are no longer equal to spy
I primarily trade spx spreads and have always been aware of the many benefits such as the no assignment risk, tax benefits, overnight options trading etc... But was unaware of the premium benefits... Or is there give and take? Are there are any cons to a shorter wing hedge width? Does Theta behave differently since your long is technically closer on spx? Does gamma feel differently too? Are there more structural benefits to spx? I'm curious on your thoughts and sorry for the odd explanation. I didn't really know how to explain this to begin with
Edit : To clear up my explanation... 5 spy credit spreads with a $1 wide wings give considerably less premium than 1 spx credit spread with $5 wide wings at the same deltas and dte every time. Spx is 10x the notional value but that set aside.. The examples I provided each carry the same max loss so why would one trade 5 spy, when they can just trade one spx and be subject to the same max loss as 5 spy credit spreads but receive more premium for spreads sold at the same delta and dte.