XSP Options Automation: What to Know Before You Trade It
XSP was added to the Option Omega automation platform in April 2026. Why its liquidity differs from SPX and SPY, and how Matt builds an SPX proxy for it.
XSP, which tracks the S&P 500 at one-tenth the size of SPX, was a new ticker on the Option Omega automation platform when this April 2026 video came out. It wasn’t in the backtester, and that was on purpose: XSP’s liquidity is very different from SPX and SPY, and Matt thinks it’s prudent to understand that difference before automating a trade on it.
In this short video, Matt walks through the SPX backtest he uses as a stand-in for an XSP trade: strike rounding, entry slippage and fees.
Why XSP is in automation but not the backtester
SPX and SPY are two of the most liquid symbols in options trading. XSP is not. In a recording Matt made of a butterfly on XSP, the bid/ask at the top of the screen jumps around.
Matt pointed out that people online often tell SPY traders to just trade XSP instead, without paying attention to lot size, the type of trade, or whether it has stops or exits. Those details can matter more on a thinner ticker.
Why trade XSP at all
Matt gave two advantages of XSP over SPY:
- Cash settled. There is no assignment.
- Section 1256. For US traders, it gets Section 1256 tax treatment, which comes with some tax advantages.
The trade-off is liquidity. Even though XSP is one-tenth the size of SPX, it is not as liquid.
| SPX | XSP | |
|---|---|---|
| Liquidity | One of the most liquid option symbols | Much thinner; bid/ask jumps around |
| Strike increments | 5 points | 1 point |
| Size | Full size | One-tenth of SPX |
Looking for an easy exit
When Matt looks for something to automate on XSP, his first question is liquidity: how hard will it be to get in, and how hard will it be to get out? Every trade needs an entry. But in Matt’s words, “the easiest trade to exit is one that you don’t have to exit.”
So the example is deliberately simple:
- Underlying in the backtest: SPX, as a proxy for XSP
- Position: a put spread, sold every day
- Fitting: none; it is not optimized
- Exit: none. The trade is held to expiration, sometimes called “ride or die” or “no touch.”
It’s directional, and Matt didn’t present it as a great strategy. He expected viewers to say it looks like a MAR 1 backtest at a 5% allocation, and agreed. He said it had held up okay in 2026 up to the recording, which he called a really unique year, with the market back at all-time highs after being down quite a bit two weeks earlier. He used it to show the proxy setup, not to recommend the trade.
Building the SPX proxy backtest
Matt uses three settings to make a plain SPX backtest a closer stand-in for XSP.
1. Round strikes to the nearest 10
XSP strikes come in 1-point increments, and SPX strikes come in 5-point increments. Turning on round strikes to nearest 10 makes the backtester always pick an SPX strike that rounds to the nearest 10. Since XSP is one-tenth of SPX, an SPX strike at a multiple of 10 lines up with a whole-number XSP strike.
2. Use plenty of entry slippage
The example uses 20 cents of entry slippage on an SPX 10-wide spread. Is that too much for SPX? Probably, Matt admits. But the trade isn’t going to run on SPX. Because the SPX proxy is 10 times the size of XSP, a generous slippage assumption is his way to account for XSP’s wider markets.
3. Leave out the exit
With no exit, there is no need to get out through XSP’s spreads. Stops and profit targets would each need another fill on a thin ticker.
| Proxy setting | Value in the example | Why |
|---|---|---|
| Underlying | SPX | XSP wasn’t in the backtester at the time |
| Strike selection | Round to nearest 10 | Matches whole-number XSP strikes |
| Entry slippage | 20 cents on a 10-wide spread | Accounts for XSP’s thinner liquidity |
| Exit | None (ride or die) | No fill needed to get out |
A note on fees
Some traders find that XSP fees are more than one-tenth of SPX fees for their account. Matt gave a typical range for opening an SPX trade of somewhere around $1, $1.25, $1.50 or $1.78, and said this varies widely.
He suggested it may be worth bumping up the fees in the SPX proxy. In the example, opening fees of $2.50 on the SPX backtest correspond to roughly 25 cents on XSP, one-tenth of the SPX figure.
Key takeaways
- At the time of the video, XSP was in automation, not the backtester, because its liquidity is very different from SPX and SPY.
- Matt named cash settlement and Section 1256 treatment as its advantages. Its drawback is liquidity.
- Matt looks for trades that are easy to exit. A no-touch trade has no exit fill to worry about.
- His proxy is an SPX backtest, with strikes rounded to the nearest 10 and generous entry slippage.
- Check your fees. Some traders find XSP costs more than one-tenth of SPX, so Matt suggested raising fees in the proxy.
Try it yourself
Users can build an SPX proxy like Matt’s in the Option Omega backtester to see how strike rounding, slippage and fees change the results, and set up XSP trades in automation. For more on why we do not backtest XSP directly and what we used instead, see 0DTE XSP: a backtest alternative.
Watch the full video: XSP Options Automation: What You Need to Know Before You Trade It.
Backtest results are hypothetical and do not guarantee future performance. Options trading involves substantial risk.
