ETF providers have wide discretion when it comes to distribution policies. Most ETFs opt for quarterly payouts, some choose semi-annual or annual distributions, while income-oriented ETFs often provide monthly income to cater to yield-focused investors.
But what about weekly payouts? It’s rare, but not unheard of. For investors looking for income delivered every Friday, Roundhill ETFs comes to mind. They’ve introduced three unique options-based ETFs that adhere to this unusual schedule. Here’s what you need to know.
How the Roundhill ETFs work
The Roundhill weekly distribution lineup includes three ETFs:
- Roundhill Innovation-100 0DTE Covered Call Strategy ETF (NYSE:QDTE)
- Roundhill S&P 500 0DTE Covered Call Strategy ETF (NYSE:XDTE)
- Roundhill Small Cap 0DTE Covered Call Strategy ETF (NYSE:RDTE)
These ETFs provide exposure to some of the most popular market benchmarks: the Nasdaq 100, S&P 500, and Russell 2000. From an exposure standpoint, you’re getting mega-cap growth with QDTE, large-cap blend with XDTE, and small-cap blend with RDTE.
Now, you’ve probably noticed the “0DTE” label in their names. That stands for "zero days to expiry", a term used in options trading. A 0DTE option is one that expires the same day it’s written.
That’s exactly what these ETFs do. Each morning, the funds sell out-of-the-money (OTM) calls—options with a strike price higher than the current market price of the index. This generates income from the premiums, and since the options expire the same day, the risk exposure is short-lived.
While the strategy delivers consistent income, it doesn’t come cheap. Each ETF charges a 0.95% expense ratio, which is on the higher side. That said, these ETFs have proven to attract investor interest, with all three surpassing the $50 million AUM threshold needed to avoid closure:
- QDTE: $651 million AUM.
- XDTE: $293 million AUM.
- RDTE: $117 million AUM.
Benefits and Risks
The most obvious benefit of the Roundhill 0DTE ETFs is the enhanced yields. By selling 0DTE calls daily, these ETFs effectively cap their upside for immediate income. One reason 0DTE options are so lucrative is that they tend to be priced less efficiently than longer-term options, given the complexity and short timeframe for market participants to adjust.
This can be seen in the impressive distribution yields these ETFs offer:
- QDTE pays 26.87%
- XDTE pays 18.13%
- RDTE pays 37.55%
All else being equal, the more volatile the underlying asset, the greater the premiums. That’s why RDTE, with its small-cap focus, yields the highest, QDTE (dominated by mega-cap tech) comes in second, and XDTE (a more balanced S&P 500 exposure) has the lowest yield of the three.
Another advantage of these ETFs is their use of cash-settled FLEX and European-style index options (NDX, SPX, and RUT). FLEX options allow the funds to customize key terms like expiration dates and strike prices, while European-style options can only be exercised at expiration.
These features reduce the risk of early assignment and simplify fund management, which is particularly important for daily options strategies like this.
Of course, there are risks, too. The most obvious is the capped total returns, inherent to all covered call strategies. By selling calls, you’re giving up upside potential for high immediate income. If you’re investing in these ETFs, you likely already accept this trade-off.
There’s also the derivative risk. None of these ETFs actually hold the Nasdaq 100, S&P 500, or Russell 2000 stocks. Instead, they use deep in-the-money FLEX options (essentially a form of LEAPS) to create synthetic exposure.
Finally, the tax efficiency isn’t great. According to their tax documentation, the distributions from these ETFs are largely a mix of return of capital and ordinary income, with the latter being less tax efficient compared to capital gains or qualified dividends.
If you’re a U.S. investor, you’ll want to hold these ETFs in a Roth IRA or another tax-advantaged account to minimize the tax impact and avoid a hefty bill.