This 17% Yield Nasdaq Covered Call ETF Is Somehow Outperforming QQQ

There’s nothing inherently wrong with a high distribution, but an ETF can’t manufacture economic returns simply by paying shareholders more. On the ex-distribution date, its NAV falls by the amount distributed, all else being equal. If the strategy can’t earn enough through stock appreciation, dividends and option premiums to replenish those payouts, the share price can gradually erode.

That’s especially important with covered call ETFs. Selling calls against a fast-moving growth index such as the Nasdaq-100 can generate substantial premiums, but it can also be particularly expensive in terms of forgone upside. The very technology stocks generating all that volatility are also capable of rallying rapidly through the calls’ strike prices.

That’s why the TappAlpha Innovation 100 Growth & Daily Income ETF (TDAQ) caught my attention. Its current distribution rate is 17.58%, yet over its short history, the fund hasn’t merely maintained its NAV while making those payouts. It has actually produced a slightly higher total return than a long-only Nasdaq-100 ETF.

How TDAQ Generates a 17% Yield

TDAQ starts with familiar exposure. It obtains its Nasdaq-100 allocation through the Invesco NASDAQ 100 ETF (QQQM), giving shareholders exposure to many of the largest nonfinancial companies listed on the Nasdaq. The income overlay is where things become more unusual.

TDAQ generally sells Nasdaq index call options with zero days to expiration (0DTE) options. These contracts expire on the same trading day they’re written. Rather than, say systematically overwriting 100% of its portfolio with one-month ATM calls (like QYLD does) and potentially watching the Nasdaq rally through its strike for weeks, TDAQ repeatedly resets its option exposure. Each new trading session gives the strategy another opportunity to select a strike based on current market conditions and collect additional premium.

Once each day’s call expires, TDAQ retains its underlying Nasdaq-100 exposure overnight without the previous day’s option continuing to cap its gains. That’s potentially important because a meaningful portion of equity-market returns can occur outside regular trading hours. The strategy still sacrifices upside when the Nasdaq rallies sufficiently during the trading day. There is no way around that fundamental covered call trade-off. But the daily reset means the upside cap isn’t continuously hanging over the portfolio for weeks at a time.

TDAQ Has Somehow Stayed Ahead

Despite those higher costs and the upside surrendered through its 0DTE calls, TDAQ has managed to remain slightly ahead so far. TDAQ currently has a 17.58% distribution rate. That income comes at a price, though. Its 0.83% expense ratio consists of a 0.68% management fee plus 0.15% in acquired fund fees and expenses.

According to Testfolio, over the 1.05-year period ending Sept. 21, 2026, TDAQ produced a 30.57% cumulative total return with distributions reinvested.  The Invesco QQQ ETF (QQQ) returned 29.65%. The margin isn’t enormous. Still, it’s an interesting result given the structural hurdles. TDAQ had to overcome its 0.83% expense ratio and the opportunity cost of repeatedly selling calls, while simultaneously funding a 17.55% distribution rate. Risk-adjusted results were similarly close. TDAQ posted a Sharpe ratio of 1.24 versus 1.19 for QQQM over the period.

There’s also an interesting potential tax angle. TDAQ’s latest Section 19(a)-1 notice estimated that 100% of its distribution consisted of return of capital (ROC). ROC is generally not immediately taxable. Instead, it reduces the shareholder’s adjusted cost basis, potentially deferring taxes until the position is eventually sold. Once basis reaches zero, subsequent ROC distributions generally become taxable capital gains. That characterization is only an estimate. Section 19(a)-1 notices are preliminary, and investors need to rely on Form 1099-DIV for the final tax treatment.

I still wouldn’t choose TDAQ over QQQ solely because it happened to outperform over one year. For someone accumulating wealth and reinvesting every distribution, the cheaper long-only ETF has a major structural advantage and preserves all of the Nasdaq-100’s upside. But TDAQ has so far managed to distribute roughly 17% annually without the NAV decay I would normally expect from such an aggressive payout. Whether its 0DTE strategy can keep doing that through a full market cycle is what I’d watch next.

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