ProShares to launch S&P 500 ETF with zero-day call options

By Suzanne McGee

(Reuters) – ProShares expects to launch an exchange-traded fund (ETF) Wednesday that uses the short-dated options commonly referred to as “zero days to expiry” on the Standard & Poor’s 500 index.

The fund’s goal is to offer investors both the additional income that traditional options contracts may sacrifice, as well as upside potential should the stock market extend its rally.

The S&P 500 High Income ETF seeks to replicate writing daily call options against the underlying index, generating additional income while giving investors exposure to the index’s upside.

The new ETF will trade on the CBOE BZX Exchange and have a fee of 0.55%.

“It’s offering what we believe is a better balance between the opportunities for income and appreciation” as well as the first ETF to employ such a covered call strategy based on short-dated options, said Simeon Hyman, global investment strategist at ProShares.

Such covered call strategies are not a new phenomenon. For decades, investors, financial advisors and money managers have written options on securities they hold in order to earn premium income.

ETF issuers began building new products around covered call and other options strategies aimed at generating income more than a decade ago. In recent years, as interest rates rose and both stock and bond markets struggled, assets under management have ballooned. The J.P. Morgan Equity Premium ETF, for instance, now has more than $30 billion in assets.

The surge of interest in the ultra short-dated options contracts, also known as zero day to expiry or 0DTE options, is starting to shake up the ETF universe.

Defiance ETFs LLC rolled out the first ETF to use daily put options, the Defiance Nasdaq-100 Enhanced Option Income ETF in September. That fund now has $226 million in assets.

In the three months since that launch, however, the Standard & Poor’s 500 stock has soared more than 7%. Both the Defiance and J.P. Morgan ETFs, meanwhile, have posted losses.

ProShares hopes to deliver more of the stock market’s upside than either a monthly-based options expiry strategy or than one based on put options may offer, Hyman said. (This Dec. 19 story has been corrected to say that the fund replicates writing daily call options rather than using this strategy in paragraphs 3, 5; also corrects a typo in paragraph 4)

(Reporting by Suzanne McGee; Editing by Stephen Coates)