The YieldMax MSTR Option Income Strategy ETF
The YieldMax MSTR Option Income Strategy ETF, currently valued at approximately $4.8 billion, is attracting significant interest due to its remarkable 136% dividend yield and its affiliation with Strategy, which holds the largest corporate Bitcoin assets. Inflows into the fund have surged consistently throughout the year, accumulating a total of $3.9 billion as of now. Market analysts suggest that this positive trend could persist, particularly if Bitcoin (BTC) experiences a breakout leading to a new peak price, an outcome that traders on Polymarket anticipate.
Investment Strategy
Investors are particularly drawn to this ETF since Strategy’s underlying stock does not provide any dividends. Instead, MSTY employs a covered call strategy to generate its monthly payouts. In this methodology, a segment of the fund’s capital is allocated to acquire Strategy shares, capitalizing on any increase in their value. Concurrently, it sells call options on these shares to earn premium income, which is then shared with investors.
To clarify, a call option is a financial contract that allows an investor to purchase an asset at a predetermined price before a specific deadline. Should the stock price of MSTR fall below this strike price, the option would lose its worth, as the stock can be acquired at a lower price directly in the market. Conversely, if the stock’s value exceeds the strike price, the option would be exercised. In this situation, while the fund secures the premium, it may miss out on additional gains if the stock continues to surge. Even if the stock does not change much in price, the ETF can still generate returns through the monthly premiums collected from the options sold. This explains why investments in MSTY and similar covered call ETFs tend to provide high dividend yields.
Performance Analysis
The allure of a 136% dividend yield is especially compelling for many seeking income from their investments. For example, a $10,000 stake could potentially return $13,600 annually, assuming the yield stays steady.
However, a deeper analysis indicates that MSTY is not keeping pace with MSTR in terms of overall returns. As of now, MSTY has decreased by 18% this year, while MSTR shares have appreciated by 34%. When evaluating an ETF’s performance, total return—which accounts for both capital gains and dividends—is critical. In this comparison, MSTR has achieved a total return of about 34.20% year-to-date, while MSTY’s total return is only 29%. Over the last year, MSTY has yielded a total return of 107%, significantly trailing MSTR’s impressive 160% growth.
Broader Trends in Covered Call ETFs
This underperformance in the covered call space is not isolated. Analyzing the performance of other covered call ETFs reveals similar trends. For instance, while Coinbase’s stock has surged by 60% in the last year, the YieldMax COIN Option Income Strategy ETF (CONY) has only increased by 24%. Furthermore, the notable $40 billion JEPI ETF also consistently falls short of the S&P 500’s performance metrics.
