Defiance ETFs introduces a new fund, the Defiance Nasdaq 100 Enhanced Options Income ETF (ticker QQQY), tapping into the trend of zero-day-to-expiration contracts (0DTE). Defiance also plans to expand its offerings with derivatives linked to the S&P 500 and Russell 2000.
Designed to maximize income, QQQY writes puts on the Nasdaq 100, seeking to offer “excess” income with some “indirect” exposure to equity upside. This approach seeks to capitalizes on investors demand for reliable income streams, with 0DTEs.
This seems like a dangerous dance as the fund seeks to gain up to 25bps of daily income, with capped upside returns and unlimited downside risk. This reduces its attractiveness from a total return perspective.
SpotGamma’s review of the prospectus reveals these key features in this ETF:
- Current Income with indirect exposure to the Index. Upside exposure to the index comes from the intrinsic value of the in-the-money puts.
- The upside exposure is capped at strike(s) of the puts being sold
- Each day they sell 0-5 days to expiration options from at-the-money to 5% in-the-money
- Target 25bps of daily income, and adjust positions around how much income they anticipate
- Invest up to 80% of assets
- These are naked put positions – no indication of put spreads or hedging, and they acknowledge and investor is exposure to 100% of the downside of the Index
- Rebalance at the end of each day
- Invest regardless of market environment