The ETF industry’s upstart-in-chief is back with another roll of the new-product dice — this time betting on a game-changing expansion of Wall Street’s zero-day options boom.
Matt Tuttle, who struck gold with leveraged meme-stock funds but fell flat with his Jim Cramer ETFs, has filed to create a line of new offerings that will trade fast-twitch derivatives on popular companies beloved by the retail-investing masses. Think Nvidia Corp., Tesla Inc., MicroStrategy Inc. and more.
The gamble? Publicly traded single-stock options aren’t available on a daily basis, meaning 0DTE bets can currently only occur on a Friday when weekly, monthly and quarterly contracts expire. Yet Tuttle says he is convinced it’s a matter of time before derivatives tied to individual companies shift to daily expiry.
“Whether that’s three months from now, six months from now, two years from now, I have no idea,” the Tuttle Capital Management CEO said. “My thinking is if I do believe that’s going to happen, I want to be first in line for it.”
In the meantime, Tuttle has come up with a workaround for his new ETFs, which could launch in the first half of the year provided the Securities and Exchange Commission doesn’t object. They’ll trade so-called Flex options — customized contracts that allow users to set terms such as strike prices and expiration dates — and roll them on a daily basis. Such contracts can be listed on exchanges without approvals in advance, Tuttle said.
America’s dynamic $11 trillion ETF industry is no stranger to investment strategies being prepared before demand, feasibility or even regulatory approval is assured. Increasingly complicated strategies featuring diverse leverage and return targets are being packaged into the easily traded wrapper and sold to the masses.
Tuttle is seeking to capitalize on two hot but controversial trends on Wall Street: Selling options to generate income, and trading those with zero days to expiration, or 0DTE. His firm plans a series of so-called 0DTE covered-call ETFs targeting mostly technology megacaps including Apple Inc. and Microsoft Corp.
To Ben Johnson, head of client solutions at Morningstar, the industry’s emphasis on first-mover advantage and apparent indifference to the risks of many strategies highlight the growing competition between firms for new business.
“Another blast from the ETF industry’s spaghetti cannon, a shot fired in hopes that a few of these products might stick to the wall,” Johnson said. Sponsors are “clearly not all that interested in whether these products actually have any long-term investment merit,” he said.
The concept of an ETF using 0DTE options is not new. The likes of Defiance ETFs and Roundhill Investments have launched ETFs focused on indexes such as the S&P 500 and the Nasdaq 100 that aim to harvest income from zero-day contracts. But almost three years after derivatives on indexes and ETFs began expiring daily, the same change has yet to be made for single-stock options.
Cboe Global Markets, the trading venue at the center of the 0DTE craze, didn’t reply to an email seeking comment on the potential timing of single-stock zero-day options and the rules on Flex derivatives.
Tuttle attracted widespread attention in 2021 when he launched a fund betting against Cathie Wood’s Ark Innovation ETF. While his attempt to ride the fame of Cramer, the host of CNBC’s Mad Money show, sputtered in short order, his foray into super-leveraged single-stock ETFs produced some of 2024’s biggest hits.
“The ETF industry is very clever about finding workarounds, to buy time until the real thing is ready,” Eric Balchunas, senior ETF analyst with Bloomberg Intelligence, said of the proposed funds. “In the end, how the sausage is made isn’t that important to investors. They just care that they’re getting this sort of cool hot sauce and end product.”
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