How daily options contracts are being used by Hamilton ETFs

How 0DTE fits in the call options tradeoff

Covered call option writing inherently trades off upside for premiums, which can be paid out as income. That exchange is relatively straightforward and widely understood. While Hamilton ETFs writes options every day on their 0DTE strategies, capping potential upside during each trading day, Piquard notes a particular advantage for these strategies relative to a monthly expiry: they participate overnight.

Piquard explains that often some of the most significant stock moves occur after market hours, as futures markets take over and key news pieces like earnings reports, technological developments, and leadership appointments tend to come out after 4pm eastern. On a daily options strategy, the option contract was written during market hours and resolved during market hours, the strategy remains exposed to any upside that occurs after market hours.

Active writing can also help with upside exposure during volatile periods. Options premiums generally rise with market volatility and Piquard says that 0DTE option premiums tend to adapt to volatility very quickly. As those premiums rise in volatile periods, to the upside or downside, Piquard and his team can elect to write fewer options to generate the necessary premiums for their strategy, allowing for more upside potential.

Managing costs and finding suitability

Writing daily options contracts comes with an innately higher cost, simply due to the sheer volume of transactions. Piquard explains that his team seek to manage those costs by only writing 0DTE covered call options on the most liquid indices: the S&P 500 and the NASDAQ 100. Piquard gives the example of one Hamilton 0DTE ETF that writes options on an exposure to the NASDAQ 100. That ETF needs to write about 15 contracts per day, at a cost of $1 (USD) per contract. $15 per day on 250 trading days amounts to $3,750 in costs for a $332 million ETF. Piquard limits the 0DTE options trading for all of Hamilton’s daily option funds to those highly liquid options markets where transaction costs are as low as possible.

There is also leverage at work in Hamilton’s 0DTE options ETFs. The ETFs hold a 100% exposure to a different ETF, usually issued by Hamilton, and add roughly 25% leverage, which is then used to buy exposure to a large S&P 500 or Nasdaq 100 ETF. 0DTE options are sold on that additional exposure purchased through leverage.