The State of Options-based ETF, May 2024: YieldMax ETFs Hit Double-Digit Yields

What are YieldMax ETFs, and how do they work?

YieldMax ETFs offer a unique twist to the traditional covered call strategy, commonly used by retail investors and advisors to generate income from highly traded stocks.

Instead of directly owning the underlying securities and selling calls against them or a reference index like the SPX or NDX, YieldMax employs a "synthetic covered call strategy."

Here's how it works:

Instead of purchasing the stock, YieldMax combines a short put and a long call to create what's known as a synthetic stock position. This method is not only capital efficient but also mirrors owning the actual stock.

The real twist comes with the addition of selling a short call to generate income, which forms the core of the covered call strategy. However, since the ETF doesn't hold the underlying shares, there's nothing to get called away if it does expire in-the-money and gets assigned.

To back these positions and add a layer of security, YieldMax uses Treasuries as collateral. In today's environment of higher interest rates, this also contributes to earning a competitive yield.

The result? YieldMax ETFs provide above-average monthly income and exposure to the returns of the underlying reference asset without physically holding it. However, like all covered call ETFs, the upside is capped, and there is still exposure to downside risk.

Some of the current YieldMax ETFs available

Here's an overview of the most popular covered call ETFs YieldMax currently offers. As you can see, most of these ETFs focus on a single stock, featuring double-digit distribution yields. This isn't a typo – they really do pay that much, but it isn't a free lunch by any means.

The distribution yield is calculated by multiplying the ETF's distribution-per-share by twelve (12) and dividing the resulting amount by the ETF's most recent Net Asset Value (NAV).

Remember, this distribution rate is not the total return you should expect, as the share prices of these ETFs can fall. All figures are accurate as of May 7, 2024.

1. YieldMax TSLA Options Income Strategy ETF
   TSLY
   -3.36%
   : 0.99% expense ratio, 53.78% distribution yield
2. YieldMax Innovation Option Income Strategy ETF
   OARK
   -2.05%
   : 0.99% expense ratio, 54.26% distribution yield
3. YieldMax AAPL Options Income Strategy ETF
   APLY
   -0.17%
   : 0.99% expense ratio, 24.31% distribution yield
4. YieldMax NVDA Options Income Strategy ETF
   NVDY
   -3.19%
   : 0.99% expense ratio, 55.67% distribution yield
5. YieldMax AMZN Options Income Strategy ETF
   AMZY
   -2.07%
   : 0.99% expense ratio, 50.55% distribution yield
6. YieldMax META Options Income Strategy ETF
   FBY
   -2.12%
   : 0.99% expense ratio, 56.05% distribution yield
7. YieldMax GOOGL Options Income Strategy ETF
   GOOY
   -1.81%
   : 0.99% expense ratio, 45.55% distribution yield
8. YieldMax COIN Options Income Strategy ETF
   CONY
   -0.58%
   : 0.99% expense ratio, 119.10% distribution yield
9. YieldMax NFLX Options Income Strategy ETF
   NFLY
   +0.56%
   : 0.99% expense ratio, 69.54% distribution yield
10. YieldMax DIS Options Income Strategy ETF
    DISO
    +0%
    : 0.99% expense ratio, 41.75% distribution yield
11. YieldMax MSFT Options Income Strategy ETF
    MSFO
    -1.53%
    : 0.99% expense ratio, 32.36% distribution yield
12. YieldMax XOM Options Income Strategy ETF
    XOMO
    +1.48%
    : 0.99% expense ratio, 22.80% distribution yield
13. YieldMax JPM Options Income Strategy ETF
    JPMO
    : 0.99% expense ratio, 25.64% distribution yield
14. YieldMax AMD Options Income Strategy ETF
    AMDY
    -3.92%
    : 0.99% expense ratio, 36.93% distribution yield
15. YieldMax PYPL Options Income Strategy ETF
    PYPY
    -1.65%
    : 0.99% expense ratio, 60.45% distribution yield
16. YieldMax SQ Options Income Strategy ETF
    SQY
    : 0.99% expense ratio, 62.79% distribution yield
17. YieldMax MRNA Options Income Strategy ETF
    MRNY
    -2.88%
    : 0.99% expense ratio, 56.27% distribution yield

The distribution yields of these covered call ETFs are exceptionally high, primarily due to the nature of the underlying strategy and the volatility of the reference assets.

Selling options on stocks like Tesla using a synthetic strategy, for instance, can command high premiums because these stocks are more volatile. When you sell a call option, you collect a premium upfront, which contributes to the fund's income.

This strategy effectively compensates you for the risk of capping potential gains if the underlying stock rises beyond the strike price of the call option.

As a result, the higher the volatility of the underlying stock, the higher the potential income from selling the option, but it also reflects the increased risk you're taking by using this strategy.

Please note this article is for information purposes only and does not in any way constitute investment advice. It is essential that you seek advice from a registered financial professional prior to making any investment decision.