Relationship Between SPX and SPY

Here's how the price relationship between SPY and SPX works:

Net Asset Value (NAV): The value of the underlying assets in the ETF is calculated by adding the market value of all the securities held in the portfolio, plus any cash or other assets, minus any liabilities. This total value is then divided by the total number of outstanding shares of the ETF. The result is the Net Asset Value (NAV) per share, which represents the intrinsic value of one share of the ETF.

Price Determination: The price of SPY is determined by the supply and demand for its shares in the open market. Investors buy and sell shares of the ETF throughout the trading day, and the market price may fluctuate above or below the NAV per share. However, due to the ETF's creation and redemption mechanism, any significant deviations between the market price and the NAV are usually short-lived, as market participants known as Authorized Participants (APs) can step in to arbitrage the price difference.

In summary, the price of SPY is not directly converted from the SPX price. Instead, it is derived from the value of the underlying stocks in the S&P 500 index. The market price of SPY will generally track the performance of the index, but it may not be an exact match due to factors like fees, expenses, and slight differences in the ETF's holdings compared to the index.