QQQY ETF inflows slow despite zero-day options (ODTE) boom

The Nasdaq 100 Enhanced Options Income ETF (QQQY) fund has done well in the past three months as demand for zero day-to-expiration (0DTE) options rise. The QQQY stock surged to an all-time high of $18.54 in November, much higher than its monthly low of $16.93.

Demand for the ETF is easing, as evidenced by its November inflows. Data shows that the fund had over $44 million in inflows during the month down from $133 million in October. It had $20 million in inflows in September. According to its website, it now has over $200 million in assets.

The Defiance Nasdaq 100 Enhanced Options Income ETF is part of the growing trend in active ETFs that seek to generate returns using options. Other popular ETFs in the industry are JEPI, JEPQ, and QYLD. 

Like these other funds, QQQY is characterized by a high expense ratio of 0.99% and a high monthly dividend yield. It has a yield of 11.37%, which is higher than what government bonds are yielding.

QQQY ETF is also taking advantage of the so-called zero-day-to-expiration. As the name suggests, these are options whose expiry date is the same day and session. These options are used to play single-day price moves of an asset. While the strategy can produce huge gains, ODTE is a low-probability approach that can lead to more losses over time.

QQQY ETF works in a relatively complicated way. Each trading day, the fund sells at-the-money and in-the-money puts on the Nasdaq 100 index with near-term expirations at a range of 0% to 5%. It then receives the premium income for each put sold and also earn both time decay and in-the-money puts. 

Like other covered call ETFs, QQQY ETF provides monthly distributions to its investors. Its aim is to generate a stream of income every day by selling in-the-money put options that seek a minimum daily income of 0.25%. The prospectus adds that:

“If the Sub-Adviser determines this 0.25% daily income is not achievable, the Fund will sell options that are priced at the current market value to try to make the most of the available daily income.”

A closer look at its distributions shows that they have dropped from month to month. They started at $1.10 and moved to $1 in October followed by 93 cents in November.It is unclear whether the Defiance Nasdaq 100 Enhanced Options Income ETF will do well over the years. In my opinion, I believe that traditional ETFs like QQQ, SPY, and SCHD offer the best way to generate wealth in a long period.

The post QQQY ETF inflows slow despite zero-day options (ODTE) boom appeared first on Invezz