Zero-day options boom is spilling into ETF market
Bloomberg Intelligence. Each day, QQQY plans to sell at- or slightly in-the-money puts tied to the Nasdaq 100 with an expiration of 24 hours. From the fund’s point of view, these amount to bullish bets on the index.
Should the benchmark rise, the ETF would pocket the premiums plus a limited amount of extra upside linked to the time-value of the contracts that were sold in-the-money. However, if the gauge falls below the strike price of a put, the buyer of the option can demand the difference between that threshold and the index level. If that is more than the premium received by the fund, the ETF faces a loss.
QQQY will hold cash and short-term Treasuries as collateral for its derivative investments. Wall Street has been rushing to offer options-selling products over the past year, in part encouraged by the success of the JPMorgan Equity Premium Income ETF (JEPI). That fund outperformed the S&P 500 by 15 percentage points during 2022’s bear market, and has racked up almost $30 billion in assets in a little over three years.
Money has kept flowing in despite lackluster performance in 2023. More than a dozen options-income ETFs have launched since this time last year, according to data compiled by Bloomberg. Defiance also plans to start the Defiance S&P 500 Enhanced Options Income ETF (JEPY) and the Defiance R2000 Enhanced Options Income ETF (IWMY), focused on derivatives linked to the S&P 500 and Russell 2000, respectively, according to its original filing.
Read more on livemint.com
