I was looking at the difference between the SPX and SPY costs, and am confounded why there is a difference between the option costs. Since SPY is 1/10th of the SPX, it would stand to reason (in my mind) that the options on these should also be 1/10th the cost. The SPY options appear to be trading at a premium to the SPX. What would keep one from selling 10 SPY options at a certain strike, and buying 1 SPX at the same strike. Regardless of the move, the in the money SPY and SPX will settle for nearly the same amount (arbitrage).
That said, there is no such thing as a free lunch, so there is some reason this would fall apart (or someone would already have taken advantage of the difference thus closing the gap). Does anyone have any ideas on what the differences would be?? I was just trying to choose between investing in one of these 2 vehicles and would like to understand the differences first.
Example:
June 113 SPY mid 3.91.
June 1130 SPX mid 36.10
