There's an ETF for That? Weekly Dividend ETFs

Roundhill Investments

Roundhill Investments has taken a novel approach to weekly dividend ETFs, offering three distinct funds designed to cater to different market segments.

These include the Roundhill Innovation-100 0DTE Covered Call Strategy ETF

, the Roundhill S&P 500® 0DTE Covered Call Strategy ETF

XDTE

-0.31%

, and the Roundhill Small Cap 0DTE Covered Call Strategy ETF

RDTE

-0.54%

. These ETFs provide exposure to the Nasdaq-100, S&P 500, and Russell 2000 indices, respectively.

What sets these ETFs apart is their unique income-generating strategy. Each fund provides overnight long exposure to its respective index and generates income by selling out-of-the-money (OTM) zero-day-to-expiry (0DTE) index call options each morning.

"Using 0DTE options allows for daily option premiums, enabling the potential for frequent distributions to investors," says Dave Mazza, CEO at Roundhill Investments. "By selling 0DTE options at market open, QDTE potentially allows for investors to capture the full return of the overnight session."

This strategy capitalizes on the rapid time decay of these options, which is most pronounced at or near their expiry, thus potentially offering very high distribution rates.

"Unlike strategies which may hold short option positions overnight, QDTE is "uncapped" from market close until a new short call position is entered the following session," Mazza notes. " This approach offers the potential for steady income by capturing short-term volatility due to inefficiencies in the market."

As of September 30, the distribution rates are quite impressive, with XDTE paying an 18.54% distribution rate, QDTE at 31.33%, and RDTE expected to offer a similar rate given the Russell 2000's inherent high volatility.

The ex-distribution and record date for these ETFs typically falls on Thursday each week, with payments following promptly on Friday, ensuring a consistent weekly income stream for investors.

YieldMax ETFs

We've previously discussed the innovative strategies employed by YieldMax ETFs, particularly their synthetic covered call strategy applied to single stocks.

Most YieldMax ETFs use a combination of a short put and a long call to create what's known as a synthetic stock position. This approach is not only capital efficient but also effectively mirrors owning the actual stock.

To generate income, these ETFs employ a strategy of selling short calls. Since the ETFs do not hold the underlying shares directly, there is no risk of the shares getting called away if the option expires in-the-money and gets assigned. Instead, Treasuries are used as collateral to secure the positions.

Recently, on September 18, YieldMax adapted two of their "fund of fund" offerings to provide weekly distributions: the YieldMax Magnificent 7 Fund of Option Income ETFs

and the YieldMax Universe Fund of Option Income ETFs

YMAX

.

The YMAG specifically targets individual YieldMax ETFs that correspond to high-profile companies including Apple Inc. (AAPL), Amazon.com, Inc. (AMZN), Alphabet Inc. (GOOGL), Meta Platforms, Inc. (FB), Microsoft Corporation (MSFT), NVIDIA Corporation (NVDA), and Tesla, Inc. (TSLA).

It is rebalanced monthly to maintain equal weighting across these ETFs, and as of September 30, it boasts a distribution rate of 44.64%.

On the other hand, YMAX offers a broader diversification, holding a variety of YieldMax ETFs corresponding to a wide range of companies, not limited to the 'Magnificent 7'.

This includes stocks like Exxon Mobil, Netflix, MicroStrategy, and AMD. It too is rebalanced regularly to ensure equal weighting and is open to including new launches. YMAX currently offers an even higher distribution rate of 62.55%.

Defiance ETFs

Defiance ETFs rounds out our list with three offerings that have undergone significant changes recently. On September 26th, each of these ETFs was renamed and transitioned to weekly distribution schedules.

The lineup includes the Defiance Nasdaq 100 Enhanced Options & 0DTE Income ETF

, Defiance S&P 500 Enhanced Options & 0DTE Income ETF

WDTE

, and Defiance R2000 Enhanced Options & 0DTE Income ETF

IWMY

.

Similar to the Roundhill offerings, these Defiance ETFs capitalize on the rapid time decay of zero-day-to-expiry (0DTE) options on their respective indices.

However, a key distinction lies in their strategy; instead of selling calls, Defiance ETFs sell in-the-money puts. This approach involves a different risk/return tradeoff, as selling in-the-money puts can lead to higher income generation potential, but also increases the risk if the index falls significantly.

As a result of this aggressive strategy, the distribution rates are quite substantial. As of the latest data, QQQY offers a distribution rate of 65.47%, WDTE provides 49.19%, and IWMY leads with an impressive 72.57%.

Please note this article is for information purposes only and does not in any way constitute investment advice. It is essential that you seek advice from a registered financial professional prior to making any investment decision.