Roundhill S&P 500 0DTE Covered Call Strategy ETF

XDTE

Market cap $323M

Traditionally, investors seeking maximum income have sold at-the-money covered calls.

Weekly distribution ETFs have attracted a lot of attention from income investors.

Gone are the days when zero-days-to-expiration, or 0DTE options were reserved for degenerate traders on WallStreetBets looking to blow up their portfolios.

Roundhill S&P 500 0DTE Covered Call Strategy ETF (XDTE) maintains a Hold rating, reflecting strong income utility but significant NAV erosion risk. XDTE offers a 20.3% dividend yield via daily OTM call writing, but its NAV and payouts have declined despite S&P 500 highs. XDTE outperforms peer SDTY YTD due to long-dated ITM options, but underperforms traditional covered call ETFs (SPYI, GPIX) in bull markets.

I advocate for value-oriented covered call ETFs with underlying holdings beyond AI-saturated large-cap growth indices like SPY and QQQ. The risks for NAV erosion and income declines are higher on this front. Despite these risks, including some QQQ/SPY-linked covered call ETFs could enhance diversification and capture higher yields from volatility and growth.

Covered call ETFs offer attractive monthly yields, often exceeding 10%, appealing to income-focused investors. Most top covered call ETFs are heavily concentrated in large-cap growth, specifically S&P 500 and Nasdaq-100 exposures. This concentration introduces significant risk, as these ETFs exhibit strong performance correlations and similar downside profiles.

TSPY and (XDTE) are compared for their performance in sideways markets. TSPY is rated 'Buy' for its transparent structure, slightly higher total return since inception, and lower risk of capital erosion versus XDTE, which is rated 'Hold'. XDTE offers a higher weekly dividend yield (36.87% vs. TSPY's 14.76%) and greater tax efficiency, but suffers from significant capital erosion and higher risk.

I am maintaining my hold rating on the Roundhill S&P 500 0DTE Covered Call Strategy ETF (XDTE) due to high risk and persistent NAV erosion. XDTE offers a ~21% yield with weekly distributions, but capital appreciation is structurally limited and returns are distribution-dependent. The fund's 0DTE options strategy benefits from bull markets but fails to recover in sharp rebounds, making timing and active management critical.

Yield for traditional income sources have started to compress. For income-oriented investors, who seek to build a reliable passive income machine it causes a real headache. To hit a certain target income figure, investors have to assume either higher risks, extend time horizon or save/invest more capital.

Passive income is about accessing strong portfolio cash flows without sacrificing the sustainability, or durability aspect. So, everything that provides high double digit yields is very likely to tick the box of attractive income, but not the sustainability aspect. Given this, XDTE might not be the instrument to focus on, as it offers a dividend yield of ~30%.