So I recently learned of QDTE, which is a covered call index fun that writes 0dte options. Obviously this strategy is expected to be very risky, and could even regularly loose value as buyers choose to execute their contracts. But looking at their performance so far it seems to be much less volatile than one would expect.
Nevertheless, the risk is still there (imo), but what is stopping me from hedging with puts on the index and rolling that position every so often. Sure, the premium cuts into dividend yield a bit, but at such a high yield I don't really care.
Some numbers I've come up with.
100 shares @42.50 (current price) – $4250
Weekly DPS averages $0.3 comes out to $120/month.
So I buy $2 otm puts, and roll that position every month or so, worse case if the value plummets I loose my premiums, upside is the difference between my premiums and dividends.
Only issue I see is that the volume of options being traded might be too low to sustain this idea, but I see open strategy on RH that mathematically would work for this strat.
Posted by RebelChild1999
1 Comment
A quick glance shows QDTE started trading around 48 in April 2024, now in the 42 range. SPY had an April peak around 525 now about 570.
Looks like QDTE pays about 20 percent in annual dividends. Back of the envelope shows a wash between straight SPY and this new ETF.
The one large caveat is that during a crash or mid-day trading halt, low liquidity ETFs may have extremely wide bid ask spreads because it becomes difficult to arbitrage away risk during fast markets.
Hedging what is already a complex product is not something I would do. Certainly not with a big chunk of money.
If a person wants to invest a small amount in these new ETFs go ahead. All in? Not worth the risk for what is at most a modest return bonus.