0DTE Covered Call Strategies in the S&P 500: A Deep Dive into Income Generation and Risk-Adjusted Returns

The S&P 500 has long been a cornerstone of income-focused portfolios, but the rise of zero days-to-expiration (0DTE) covered call strategies has introduced a new dimension to yield generation. These strategies, which involve selling call options on the index with immediate expiration dates, aim to capture premium income while maintaining exposure to market gains. The YieldMax S&P 500 0DTE Covered Call Strategy ETF (SDTY) has emerged as a key player in this space, recently declaring a dividend of $0.1542 per share on September 19, 2025, to shareholders of record as of September 18YieldMax® ETFs Announces Distributions on ULTY, CONY, FIAT^[1]. This payout, while lower than prior weeks, underscores the dynamic nature of 0DTE strategies and their potential for high-yield returns.

The Mechanics of 0DTE Covered Call Strategies

A 0DTE covered call strategy involves holding a long position in an underlying asset (in this case, the S&P 500) while simultaneously selling call options that expire the same day. This approach generates income through option premiums but caps upside potential if the index rises above the strike price. For SDTY, the strategy is synthetically implemented via futures and options, allowing it to replicate the S&P 500's performance while systematically harvesting volatilitySDTY, S&P 500 0DTE Option Income ETF – YieldMax^[2].

The recent $0.1542 dividend reflects the ETF's weekly distribution model, which has seen significant fluctuations. For instance, the prior week's payout of $0.1900 (September 5, 2025) marked a 3% increase from the previous weekSDTY Dividend Announcement $0.1900/Share 9/3/2025^[3], while the subsequent $0.1461 payment (September 12, 2025) signaled a 61.8% dropSDTY Dividend History, Dates & Yield - Stock Analysis^[4]. Such volatility is inherent to 0DTE strategies, as option premiums are highly sensitive to short-term market conditions, including implied volatility and liquidity.

Income Generation and Yield Metrics

SDTY's dividend yield of 14.13% as of September 17, 2025YieldMax S&P 500 0DTE Covered Call Strategy ETF (SDTY)^[5], positions it among the highest-yielding ETFs in the market. This yield is driven by the ETF's annualized dividend of $6.44 per shareSDTY Dividend Announcement $0.1461/Share 9/10/2025^[6], which, while impressive, requires scrutiny. A critical caveat is that these distributions may include a return of capital, particularly during periods of market stress when the strategy's synthetic replication of the S&P 500 incurs lossesDistribution Schedule – YieldMax ETFs^[7]. Investors must distinguish between true income and principal returns to assess the sustainability of these yields.

The recent $0.1542 dividend, for example, occurred amid a broader market correction, where the S&P 500 experienced heightened volatility. This context highlights the dual-edged nature of 0DTE strategies: while they can generate robust income in stable or sideways markets, their effectiveness wanes during sharp downturns when option premiums compress and the underlying index declinesSDTY Dividend History - SDTY Dividend Dates & Yield^[8].

Risk-Adjusted Returns: Balancing Yield and Volatility

The allure of high yields must be weighed against the risks inherent in 0DTE strategies. Unlike traditional covered call strategies, which hold options with longer expirations, 0DTE strategies expose investors to daily rebalancing and liquidity constraints. For SDTY, this means frequent adjustments to its synthetic portfolio, which can amplify transaction costs and tracking errorsYieldMax S&P 500 0DTE Covered Call Strategy ETF (SDTY) …^[9].

Historical data from SDTY's dividend history reveals a pattern of inconsistent payouts, with weekly distributions fluctuating between $0.1461 and $0.1900 in recent weeksSDTY Dividend History, Dates, Yield & Charts - bestetf.net^[10]. While this volatility aligns with the strategy's design, it also raises questions about its suitability for income-focused investors seeking predictable cash flows. A risk-adjusted analysis must consider not only yield but also the ETF's Sharpe ratio, maximum drawdowns, and correlation with broader market indices.

Conclusion: A High-Yield Option with Caveats

The YieldMax S&P 500 0DTE Covered Call Strategy ETF exemplifies the potential and pitfalls of modern income strategies. Its recent $0.1542 dividend underscores the ability of 0DTE strategies to deliver attractive yields, but investors must remain vigilant about the risks of return of capital, liquidity, and market volatility. For those with a high-risk tolerance and a short-term horizon, SDTY offers a compelling tool to enhance portfolio income. However, it should complement—not replace—diversified, long-term strategies.

As the market evolves, the performance of 0DTE strategies will hinge on their ability to adapt to shifting volatility regimes. For now, SDTY's weekly distributions serve as a case study in the trade-offs between yield and stability in the pursuit of income generation.