The World's First 0DTE Options-Based ETF Is Here (2024)

Exchange-traded fund (ETF) originator Defiance has launched the world's first 0DTE, or "zero days to expiration," options-based ETF, capitalizing on a growing market that's become increasingly popular with investors.

Defiance, a Miami-based registered investment advisor (RIA) and ETF originator, today launched the Defiance Nasdaq-100 Enhanced Option Income ETF, or QQQY—the world's first ETF to use one-day options for advanced traders.

"We're thrilled to introduce QQQY to the market. The daily notional trading value of 0DTE options has skyrocketed to about $1 trillion," Defiance's Chief Executive Officer (CEO) Sylvia Jablonski said.

What Is 0DTE?

0DTE, or "zero days to expiration," refers to options contracts that expire on the same day that a trade is made. While the typical options contract gives investors several days to decide whether to execute a trade, investors in 0DTE options usually have no more than a few hours to decide whether to buy or sell the underlying asset.

Traders like this because it enables them to capitalize on positions quickly, realizing capital gains in a short period. 0DTE also eliminates the possibility of wild overnight price swings in the underlying asset, when the trader isn't monitoring their investments.

0DTE options are inherently volatile, and traders should be aware of the potential for wild price swings before deciding to invest in them. Your brokerage firm could also liquidate a 0DTE position if it decides that a trade isn't "in-the-money," either above the strike price of a call option or below that of a put option. The likelihood of this increases if your brokerage finds you don't have the required funds to make the trade.

How Will This ETF Work?

Defiance's new ETF will track the performance of the Nasdaq 100 Index and aim to generate income for investors by selling put options "that are priced either at-the-money or up to five percent in-the-money" every day.

Put options are contracts that give the buyer an option—not an obligation—to sell a security at a set price and date. So if the contracted price is higher than the market price of security, in this case the Nasdaq 100, it will then make a minimum daily income distribution of 0.25%. The annual expense ratio for the ETF is 0.99%.

Options Based ETFs Get Popular

At the end of June 2023, the assets under management (AUM) by ETFs across the world stood at almost $10 trillion. And 0DTE isn't the only new investment product tapping into the demand for exposure to options.

Launched in 2020, JPMorgan Chase (JPM)'s Equity Premium Income ETF (JEPI), an options-oriented fund, outperformed the S&P 500 by 15 percentage points last year, amid 2022's bear market. The JPMorgan Chase fund has attracted inflows of nearly $30 billion since its inception three years ago.