Defiance ETFs Launches ETF that Taps Zero-Day-to-Expiration Craze

The insatiable demand for products that offer reliable income is forcing investment firms to come up with unique products to tap into the emerging market opportunity. Defiance ETF is the latest to jump into the growing demand for the so-called zero-day-to-expiration contract with the launch of ultra-short-dated options.

Defiance Option ETF

The investment fund plans to write contracts on the Nasdaq 100 that will protect investors from the index decline. According to the issuer, the Defiance NASDAQ 100 Enhanced Options Income ETF will be able to sell contracts more frequently. The ETF is to hold cash and short-term treasuries as collateral for the investments.

The new ETF product essentially amounts to a bullish bet on the Nasdaq 100, targeting investors who believe the Index will continue edging higher. Whenever the Index rises, the ETF will lock in a premium plus any extra amount linked to the time value of the contracts sold in the money.

On the other hand, whenever the Index drops below the strike price of a put placed, the buyer of the option could demand the price difference between the threshold and the index level. If the difference is more than the premium received, the ETF will incur a loss.

The ETF product will bet on the equity rally that is showing no signs of slowing down even as the Federal Reserve embarks on aggressive monetary policy tightening. Consequently, demand for derivative-selling exchange-traded funds has skyrocketed to record highs as the market continues to edge higher.

Nevertheless, given their ever-growing risk to market stability, the ever-growing demand for ODTEs continues to arouse concerns in some quarters. The option products bet on market calm and pose significant risks whenever volatility increases significantly.

Alternative Income Products Demand

Defiance joins a growing list of firms that are shrugging the concerns, opting to take advantage of the growing demand for ODTEs. ProShares has already filed to start offering ETFs leveraging option contracts. It is now a matter of time before other ETFs also incorporate them into a fund.

Many firms are increasingly racing against time to offer options products buoyed by the amount of success that JPMorgan has enjoyed with its JPMorgan Equity Premium Income ETF (JEPI). At the height of the bear market run in 2022, when the S&P 500 fell by about 19%, the fund outperformed by 15 percentage points. The fund has also amassed over $30 billion in assets over the past three years, with money flowing despite recent struggles in the recent past.

Impressed by the growing demand for options-selling products, Defiance has confirmed plans to diversify in the industry with the launch of Defiance S&P 500 Enhanced Options Income ETF (JEPY) and the Defiance R2000 Enhanced Options Income ETF (IWMY). The two option products will be focused on the S&P 500 and the Russell 2000 indexes.

According to Defiance co-founder and Chief investment officer Sylvia Jablonski, retail and institutional investors continue showing strong interest in alternative income products. This is the drive behind the launch of more option-linked ETF products to enhance the income outcomes.