RDTE: Options Do Not Save Stocks

2025-05-31 07:59:54 ET

Summary

• Despite its complex options strategy, RDTE's total return performance is shown to be very similar to the underlying Russell 2000 index (represented by IWM).
• RDTE generates a very high distribution yield (e.g., over 40%) by selling daily 0DTE call options on the Russell 2000. However, this is largely a return of principal.
• RDTE creates its Russell 2000 exposure synthetically using deep in-the-money call options, rather than holding the individual stocks. It then sells daily 0DTE (zero-day-to-expiry) out-of-the-money calls against this exposure.
• The analysis points out that the Russell 2000 index, which RDTE tracks, is not considered cheap (trading at a 23x P/E, in the 75th percentile historically).

Thesis

We have said it time and time again in our articles regarding buy-write equity funds - the vehicles represent a way to extract dividends from equities, but are by no means a smart alpha play that outperforms....

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