On March 7, 2024, we launched the Roundhill Innovation-100 0DTE Covered Call Strategy ETF (QDTE) and the Roundhill S&P 500® 0DTE Covered Call Strategy ETF (XDTE) as the first ever ETFs to utilize zero-days-to-expiry (“0DTE”) options.
QDTE and XDTE each seek to generate income by selling 0DTE call options each morning, targeting 100% notional against a covered long position. This novel structure generated strong returns for investors in year one, with each ETF outperforming their underlying reference index.
Let’s take a closer look at the year in review.
Growth of 0DTE Options
Zero-days-to-expiry (“0DTE”) options accounted for about 5% of total SPX options volume in 2016. Fast forward to 2024 and 0DTE volumes have exploded to represent 49% of the total.
For their part, QDTE and XDTE have contributed to this growth. In aggregate, the two ETFs have combined to sell an aggregate notional of more than $100 billion since launch.*
Meanwhile, assets under management have grown as investors have begun to prioritize income generation within their portfolios. As of today, QDTE and XDTE combine for roughly $1.2 billion in assets, which equates to $300 billion annualized in 0DTE options notional(!).*
*According to Roundhill Investments data
Higher Total Returns
Most importantly, QDTE and XDTE both outperformed their respective benchmarks year one. Through February 2025, QDTE and XDTE are up 17.82% and 18.81% respectively on a total return basis. This compares to returns of 16.78% for the Nasdaq-100 Index and 18.16% for the S&P 500 Index.
The performance data quoted represents past performance. Past performance does not guarantee future results. Current performance may be lower or higher than the performance data quoted. The investment return and principal value of an investment will fluctuate so that an investor's shares, when sold or redeemed, may be worth more or less than their original cost. Returns less than one year are not annualized. For the most recent standardized and month-end performance, please click here: XDTE, QDTE. You cannot invest directly in an index.
To put it simply, this is unusual—and impressive—for any covered call strategy. But XDTE and QDTE didn’t beat their benchmarks by taking on additional risk. Let’s explore further.
Lower Volatility
By selling call options each morning, XDTE and QDTE generally reduce intraday volatility. As a result, XDTE and QDTE both achieved lower realized volatilities when compared to their benchmarks.
Past performance does not guarantee future results. You cannot invest directly in an index.
While past performance is not indicative of future results, the first year of trading yielded stellar results for XDTE and QDTE – higher performance with lower volatility when compared against their underlying indices.
Putting It Together
A simple way to summarize a strategy’s returns and volatility is the Sharpe Ratio, which measures the risk-adjusted performance of an investment.
As evidenced in the calculation above, both XDTE and QDTE have provided better risk-adjusted returns than their benchmarks with lower volatilities and higher total returns.
So – how did we do it?
The Night Effect
The "night effect" is a phenomenon where stock returns have historically been higher during the overnight trading session compared to the daytime market hours. By holding an uncapped long position on the index overnight—XDTE and QDTE sell their 0DTE calls in the morning—both funds can benefit from this effect.
Since launch, the “night effect” has been a tailwind for both XDTE and QDTE – see below.
Past performance does not guarantee future results. You cannot invest directly in an index.
In addition to the “night effect” yielding higher returns, it has also yielded a lower annualized volatility since launch.
Active Management – Strike Selection
The final piece of the equation lies in active management, and the role of strike selection on the 0DTE overwrite.
Remember, it’s a delicate and strategic decision for any covered call strategy: if the call is written too close-to-the-money, it will expire in the money and generate a loss, and if the call is written too far-out-of-the-money, it will not generate an attractive premium.
So how do we evaluate the success of active management?
One simple calculation is the “Win Ratio”, which measures the percentage of days that the 0DTE strike expires out-of-the-money (and the ETF “wins”). The “Win Ratio” is then compared versus the historical average strike to evaluate the success of active versus passive management. Since launch, XDTE and QDTE have achieved Win Ratios of 75.6% and 76.5%, respectively. This number represents that 75%+ of the time, XDTE and QDTE’s short calls are expiring worthless, and the ETFs are profitable. Meanwhile, if we kept the strike moneyness fixed at the average strike (i.e. “passive management”), Win Ratios would drop to 69.1% and 69.5%, respectively. This means that Roundhill’s active management has increased the Win Ratio by approximately six percent.
Curious as to what the value of that additional 6%+ of Win Ratio achieved? XDTE’s average annualized premium since inception is 24% and QDTE’s is 35%. From inception to February 2025, capturing annualized premium an extra 6% of times due to active management was worth an extra 144bps and 210bps of premium in your pocket. We believe this value proposition is worth it.
Conclusion: A Fantastic Year
In summary, XDTE and QDTE achieved a fantastic first year. We believe active management and the night effect led to outperformance versus benchmarks without taking on additional risks or leverage. As with any investment, the past is not indicative of future results. However, as retail participation in 0DTE options market continues to potentially grow, the future remains bright for Roundhill 0DTE Covered Call Strategies to sell overpriced volatility and deliver for investors.
If you would like to learn more about our 0DTE suite, check out the resources below:
- What are 0DTE Options? Demystifying Zero-Days-To-Expiry
- Options Deep Dive: 3 Rounds in the Ring - XPAY vs XDTE
- Option Greeks Deep Dive - Theta: What Am I Paying For?
- QDTE: Not Your Average Covered Call Strategy
- XDTE: Not Your Average Covered Call Strategy
- What is a Covered Call ETF?
The 30-Day SEC Yield* (as of 2/28/25) for the Roundhill S&P 500® 0DTE Covered Call Strategy ETF and the Roundhill Innovation-100 0DTE Covered Call Strategy ETF are -0.54%, -0.58%, respectively.***
The Gross Expense Ratio for XDTE and QDTE is 0.95%.
The performance data quoted represents past performance. Past performance does not guarantee future results. Current performance may be lower or higher than the performance data quoted. The investment return and principal value of an investment will fluctuate so that an investor's shares, when sold or redeemed, may be worth more or less than their original cost. Returns less than one year are not annualized. For the most recent standardized and month-end performance, please click here: XDTE, QDTE.
The Funds currently expect, but do not guarantee, to make distributions on a weekly basis. Distributions may exceed the Funds’ income and gains for the Funds’ taxable year. Distributions in excess of the Funds’ current and accumulated earnings and profits will be treated as a return of capital. Distribution rates caused by unusually favorable market conditions may not be sustainable. Such conditions might not continue to exist and there should be no expectation that this performance will be repeated in the future. Please see the Supplemental Tax Information section of the webpage for more information on the distribution composition including the estimated return of capital. Current distributions may include return of capital.
Per the Funds most recent 19a-1 notice, the estimated per share composition of the distribution includes return of capital (ROC) of 100% for XDTE and QDTE.
A final determination of the tax character of distributions paid by the Funds will not be known until the completion of the Funds’ fiscal year and there can be no assurance as to the portions of each Fund’s distributions that will constitute return of capital and/or dividend income. The final determination of the tax character of distributions paid by the Funds will be reported to shareholders on their Form 1099-DIV.
Please consult your tax advisor for proper treatment on your tax return.
*30-Day SEC Yield: Yield calculation that reflects the dividends and interest earned during the period after the deduction of the fund’s expenses. It is also referred to as the "standardized yield".
This material must be preceded or accompanied by a prospectus.
Click here for the QDTE prospectus.
Click here for the XDTE prospectus.
All investing involves risk, including the risk of loss of principal. There is no guarantee the investment strategy will be successful. The funds faces numerous risks, including options risk, liquidity risk, market risk, cost of futures investment risk, clearing broker risk, commodity regulatory risk, futures contract risk, active management risk, active market risk, clearing broker risk, credit risk, derivatives risk, legislation and litigation risk, operational risk, trading issues risk, valuation risk and non-diversification risk. For a detailed list of fund risks see the prospectus.
Covered Call Strategy Risk. A covered call strategy involves writing (selling) covered call options in return for the receipt of premiums. The seller of the option gives up the opportunity to benefit from price increases in the underlying instrument above the exercise price of the options, but continues to bear the risk of underlying instrument price declines. The premiums received from the options may not be sufficient to offset any losses sustained from underlying instrument price declines, over time. As a result, the risks associated with writing covered call options may be similar to the risks associated with writing put options. Exchanges may suspend the trading of options during periods of abnormal market volatility. Suspension of trading may mean that an option seller is unable to sell options at a time that may be desirable or advantageous to do.
Flex Options Risk. The Fund will utilize FLEX Options issued and guaranteed for settlement by the Options Clearing Corporation (OCC). In the unlikely event that the OCC becomes insolvent or is otherwise unable to meet its settlement obligations, the Fund could suffer significant losses. Additionally, FLEX Options may be less liquid than standard options. In a less liquid market for the FLEX Options, the Fund may have difficulty closing out certain FLEX Options positions at desired times and prices. The values of FLEX Options do not increase or decrease at the same rate as the reference asset and may vary due to factors other than the price of reference asset.
0DTE Options Risk.*** The Fund’s use of zero days to expiration, known as “0DTE” options, presents additional risks. Due to the short time until their expiration, 0DTE options are more sensitive to sudden price movements and market volatility than options with more time until expiration. Because of this, the timing of trades utilizing 0DTE options becomes more critical. Although the Fund intends to enter into 0DTE options trades on market open, or shortly thereafter, even a slight delay in the execution of these trades can significantly impact the outcome of the trade. Such options may also suffer from low liquidity, making it more difficult for the Fund to enter into its positions each morning at desired prices. The bid-ask spreads on 0DTE options can be wider than with traditional options, increasing the Fund’s transaction costs and negatively affecting its returns. Additionally, the proliferation of 0DTE options is relatively new and may therefore be subject to rule changes and operational frictions. To the extent that the OCC enacts new rules relating to 0DTE options that make it impractical or impossible for the Fund to utilize 0DTE options to effectuate its investment strategy, it may instead utilize options with the shortest remaining maturity available or it may utilize swap agreements to provide the desired exposure.
Roundhill Financial Inc. serves as the investment advisor. The Funds are distributed by Foreside Fund Services, LLC which is not affiliated with Roundhill Financial Inc., U.S. Bank, or any of their affiliates.
