There’s an ETF for That? 0DTE Options Selling

Roundhill ETFs

Roundhill Investments offers a lineup of three 0DTE options-selling ETFs, each providing exposure to a major market index through a daily covered call strategy. The funds include:

1. Roundhill Innovation-100 0DTE Covered Call Strategy ETF
   QDTE
   +1.74%
2. Roundhill S&P 500 0DTE Covered Call Strategy ETF
   XDTE
3. Roundhill Small Cap 0DTE Covered Call Strategy ETF
   RDTE
   +0.48%

These ETFs provide overnight exposure to the Nasdaq 100, S&P 500, and Russell 2000 indices, respectively. Each morning, all three ETFs sell an out-of-the-money (OTM) 0DTE call option on their respective index, utilizing a combination of FLEX options and European-style index options.

Unlike traditional covered call strategies, none of these ETFs physically hold shares of the underlying index components. Instead, they maintain a synthetic position by purchasing a deep in-the-money call option, which enhances capital efficiency by avoiding the need to own all the stocks in the index.

As expected with 0DTE options strategies, distribution yields for these ETFs are exceptionally high, with XDTE offering 21.68%, RDTE yielding 26.19%, and QDTE delivering 35.54%.

The higher yields from RDTE and QDTE are driven by the greater volatility of the Russell 2000 and Nasdaq 100 indices, which generally command higher option premiums.

All three ETFs also feature a weekly distribution schedule, a rare feature among ETFs, providing investors with regular income aligned with the 0DTE strategy.

YieldMax

YieldMax is best known for its single-stock options income ETFs, but the provider has expanded into the 0DTE options strategy space with a suite of covered call ETFs. The YieldMax lineup includes:

1. YieldMax S&P 500 0DTE Covered Call Strategy ETF
   SDTY
   +0.39%
2. YieldMax Nasdaq 100 0DTE Covered Call Strategy ETF
   QDTY
   +1.39%

Both ETFs employ a daily covered call strategy, selling out-of-the-money (OTM) 0DTE call options using index options. The options utilized include SPX, XSP, NDX, and XND. SPX and NDX are the standard index options representing the S&P 500 and Nasdaq 100, respectively.

The XSP is a micro version of SPX, at 1/10th the value, while XND is a micro version of NDX, representing 1/100th the value. All of these index options are cash-settled, with Treasury bills held as collateral to support the strategy.

As with the Roundhill ETFs, both SDTY and QDTY feature weekly payouts, a notable characteristic in the ETF space. Currently, SDTY offers a distribution yield of 21.71%, while QDTY provides a yield of 8.96%.

Defiance Investments

Finally, rounding out the trio of 0DTE options-selling ETFs is Defiance Investments, with a lineup of three funds providing exposure to the S&P 500, Russell 2000, and Nasdaq 100. The ETFs include:

1. Defiance S&P 500 Enhanced Options & 0DTE Income ETF
   WDTE
   +0.43%
2. Defiance Nasdaq 100 Enhanced Options & 0DTE Income ETF
   QQQY
   +1.77%
3. Defiance R2000 Enhanced Options & 0DTE Income ETF
   IWMY
   +0.41%

Like Roundhill and YieldMax, Defiance also uses index options for all three funds, with Treasury bills held as collateral. However, Defiance ETFs take a different approach to income generation by selling in-the-money (ITM) puts instead of OTM calls.

The key difference is in the risk profile. Selling OTM calls offers limited upside with less immediate risk, as the options seller only faces a loss if the underlying index rises significantly.

Conversely, selling ITM puts provides higher premiums upfront but also greater risk, as the seller may have to purchase the underlying index if the option is exercised, potentially at a loss if the index drops sharply.

Right now, the Defiance ETFs offer extremely high distribution rates, with WDTE yielding 31.91%, QQQY offering 39.52%, and IWMY paying a whopping 53.66%. As with the Roundhill and YieldMax ETFs, Defiance’s funds also feature weekly distributions, providing frequent income to ETF investors.

This article is for informational purposes only and does not in any way constitute investment advice. The author may express their own opinions, which may not represent the opinions of ETF Central or its affiliated partners. It is essential that you seek advice from a registered financial professional prior to making any investment decisions.