Summary The YieldMax COIN Option Income Strategy ETF offers an 81.57% distribution yield by executing a covered call strategy on Coinbase. Despite attracting $1.12 billion in assets, CONY underperforms COIN significantly, especially during rapid price surges, due to its covered call strategy. Covered call selling doesn't necessarily deliver high total returns and could distort the market, especially in an extended bear market for Coinbase. I prefer direct Bitcoin investment or MSTY over CONY, given MSTY's potential for dampened volatility due to MicroStrategy's share issuance strategy. The YieldMax COIN Option Income Strategy ETF (CONY) is marketed as an income producing product with a distribution yield of 81.57%. CONY basically executes a covered call strategy on just one stock: Coinbase (COIN). YieldMax has a line-up of these fascinating ETFs, with expense ratios of 0.99%, and is very successful in attracting capital. This particular ETF has been run up to $1.12 billion in assets under management in a bit over a year. That's while underperforming the single-issue it relates to pretty wildly: Data by YCharts Obviously, 144.8% since inception is still a very good return. Profits and more have been distributed as the actual price per ETF moved down to $13.27. Data by YCharts Distributions go up and down based on the proceeds of the call selling program: Distribution per Share declared date ex date record date payable date 0.8339 01/07/2025 01/08/2025 01/08/2025 01/10/2025 1.3391 12/11/2024 12/12/2024 12/12/2024 12/13/2024 2.0231 11/13/2024 11/14/2024 11/14/2024 11/15/2024 1.1098 10/16/2024 10/17/2024 10/17/2024 10/18/2024 1.0432 09/05/2024 09/06/2024 09/06/2024 09/09/2024 1.0061 08/06/2024 08/07/2024 08/07/2024 08/08/2024 1.5732 07/03/2024 07/05/2024 07/05/2024 07/08/2024 1.6982 06/05/2024 06/06/2024 06/06/2024 06/07/2024 2.2807 05/03/2024 05/06/2024 05/07/2024 05/08/2024 2.7944 04/03/2024 04/04/2024 04/05/2024 04/08/2024 1.6619 03/05/2024 03/06/2024 03/07/2024 03/08/2024 1.0751 02/06/2024 02/07/2024 02/08/2024 02/09/2024 2.6932 01/04/2024 01/05/2024 01/08/2024 01/09/2024 2.4615 12/06/2023 12/07/2023 12/08/2023 12/13/2023 1.0776 11/07/2023 11/08/2023 11/09/2023 11/16/2023 1.2088 10/05/2023 10/06/2023 10/10/2023 10/16/2023 Because Coinbase is a highly volatile stock, the proceeds selling short-term slightly out-of-the-money calls can be very high. For example, if I pull up a covered call payout profile into optionstrat, it shows that I can get $4 for selling a call that's expiring at $30 in exactly 30 days. payout profile covered call CONY (optionstrat.com) Selling that call still leaves 7% upside on the stock position before the call is taking away any upside. If the stock goes nowhere and the call expires, the return is slightly over 14% on the invested capital here (I'm disregarding the proceeds from the call selling for simplicity sake). If you annualize that, it is a return over 400%. In practice that's hard to achieve because when Coinbase goes down this strategy exposes investors to most of the loss (with the call selling premium offsetting some of it). The worst thing is when Coinbase surges up and CONY investors make only peanuts. In the performance graph showing COIN vs CONY this plays out. CONY does almost equally bad in rapid sell-offs (although there haven't been any of real note), CONY does better when the stock trends slowly up or down and CONY lags badly when COIN shoots up. In general, I'm biased against, these covered call ETFs. There's a paper raising question marks about the strategy. Brief quote: Do high derivative income covered calls tend to deliver higher total returns? No. In fact, the relationship goes the other way. Option selling is also attracting a lot of capital in various iterations. Some of these products end up huge and could distort the market. That's especially true for more mechanical strategies and those focused on a very small universe of stocks (or a single one). It is easy to envision distortions if Coinbase were to go through an extended bear market. It could easily decline quite a bit and without upsurges, volatility would decline. Demand for calls would likely go down by a lot. Currently, Coinbase options are one of the most heavily traded. But others could take that spot. Quantum computing, AI stocks, GLP-1 stocks, who knows... But funds like this would continue to sell calls into that quiet market. Having said all that, I can also easily think of times when it could be very interesting to sell Coinbase calls. Sometimes it feels like calls are in too high of a demand. To see whether this could be an opportune time to buy CONY, I first looked into seasonality for the underlying. There isn't a lot of data out on Coinbase, but so far, it seems to do well in February: Coinbase seasonality data (Seekingalpha.com) There is a bit more data available on Bitcoin, which I discussed earlier this week here : February tends to be seasonally strong for Bitcoin. Over the past 10 years it has risen about 90% of the time and averaging a 14.4% gain. There is no direct seasonality data on Seeking Alpha, but it is also reflected in the Grayscale Bitcoin Trust ( GBTC ) data, which is an imprecise proxy but shows a win-rate of 77% and a 14.4% average 9-year gain. Coinbase is quite correlated to the price of Bitcoin: Data by YCharts This also explains why the options market charges more for ATM calls than puts. This is unusual for a stock but common with gold and Bitcoin options. To be fair, you also see this with memestocks and very speculative stocks sometimes. In the long run it doesn't make all that much sense to me for Coinbase to remain this strongly correlated to Bitcoin. Its business model is to make money from subscriptions, trading and from collecting fees on staking proceeds. Subscriptions fees and staking fees shouldn't necessarily rise and fall closely with crypto prices. Coinbase earnings will be released 2/13/2025 which likely keeps volatility elevated into the event (which is nice if you're selling calls). It also means there is likely more demand for options, which is also a good thing because this is a huge ETF that's a major seller. I'm quite bullish on Bitcoin. However, I'd rather own Bitcoin directly than any of the proxies like Coinbase or MicroStrategy ( MSTR ) which I've discussed here; why I favor Bitcoin over MicroStrategy . MicroStrategy has its own YieldMax version under the ticker MSTY, advertising a ~102% distribution yield, and for now, I think it is actually preferable to CONY as well as MSTR itself. The key reason that I like MSTY better is because MicroStrategy has increased its authorized share count. I expect it to issue a lot of shares over the coming 12 months. MicroStrategy will likely sell shares into a rising market. I don't expect the company to keep shoving shares into the market if its share price is falling rapidly. If I'm right, this should basically dampen volatility. Especially upside volatility, which is the key problem with crypto-related call selling. At the end of the day, notwithstanding the attractive distribution rate, I'd currently avoid CONY. I'd rather own Bitcoin and even Coinbase itself or MSTY. I'll still rate it a hold because I wouldn't want to short it either.
