Summary LFGY offers a high 20.91% yield by selling options on volatile crypto-related assets, providing weekly income for investors. The ETF is heavily concentrated in crypto and tech stocks, with limited diversification and strong correlation to Bitcoin's price movements. LFGY's strategy is attractive in uncertain or sideways crypto markets, offering downside protection and income versus direct crypto exposure. Given current market greed, high valuations, and low volatility, I rate LFGY a 'Buy' for conservative, income-focused crypto investors. Introduction The YieldMax Crypto Industry & Tech Portfolio Income ETF (LFGY) aims to generate income through derivatives based on some of the most volatile assets available on Wall Street. Since option premiums increase with higher volatility, LFGY has an incredibly high dividend yield of 20.91% and pays it out weekly. Key ETF Data Currently, the ETF has an expense ratio of 0.99%, which is normal when compared to other income ETFs like the YieldMax AAPL Option Income Strategy ETF (APLY). When looking at the holdings breakdown, shown in Figure 1, one can see that the ETF mostly holds financials, with more than 50% of its portfolio. Additionally, it is heavily invested in technology stocks or derivatives. Figure 1 - LFGY Holdings Breakdown (Seeking Alpha) All of this generally speaks to a relatively low level of diversification, which is confirmed when looking at the specific holdings displayed in Figure 2. As can be seen, most exposure is to either cryptos such as iShares Bitcoin Trust ETF (IBIT) or crypto-related stocks such as MicroStrategy Incorporated (MSTR) and Coinbase Global, Inc. (COIN). Other stocks like MARA Holdings (MARA) and Robinhood Markets (HOOD) are also heavily reliant on the movements of crypto. Figure 3 also shows this by highlighting the beta and correlation of different stocks to Bitcoin. Figure 2 - LFGY Top 10 Holdings (Seeking Alpha) Figure 3 - LFGY Holdings Correlation and Beta to Bitcoin (Self-Calculated in R) Since LFGY was only introduced at the start of this year, it is so far hard to determine the ETF's performance. However, when thinking about the investment strategy, the ETF is quite solid. During upturns, the ETF will, of course, gain less than its underlying stocks / ETFs as it sells options on them, meaning that gains are capped. Nevertheless, it should outperform in times of sideways performance and downturns. Also, it should even increase its already great yield, with rising volatility, as it will receive higher premiums. Investment Thesis As we have just seen, the performance of LFGY is strongly dependent on the performance of its underlyings, which again is dependent on the movements of Bitcoin and crypto in general. Because of this, it makes sense to look more closely at the current state of the crypto market. When looking at the crypto fear and greed index, shown in Figure 4, one can instantly see that there currently is a lot of greed in the market. Generally speaking, this should make investors more cautious as it suggests that many potential buyers have already done so at the moment. Figure 4 - Bitcoin Fear and Greed Index (Alternative.me) Furthermore, Figure 5 shows the implied volatility of 90-day at-the-money options on Bitcoin. As can be seen, it is currently low on a one-year scale. On one side suggests that options are currently cheap, giving LFGY much more potential. On the other hand, it could also suggest a less positive outlook as volatility has normally moved upward from current levels. Figure 6 also shows the daily chart of Bitcoin. While the crypto does currently have strong momentum and is in an uptrend, the resistance at $106k could be a potential initiator for a bounce back. All of this favors a more cautious approach, which LFGY brings to investors. Figure 5 - Bitcoin ATM Implied 90 Day Volatility (Theblock) Figure 6 - Bitcoin Daily Price Chart (Etoro) When looking at the underlying companies, one can also see some risks that favor selling options on them instead of just holding them directly. COIN currently trades at extremely high valuations, with an EV/EBITDA ratio of 78.42 and a P/E ratio of almost 50. The same can be said of MSTR at a forward EV/EBITDA of over 4000 and negative earnings. Furthermore, MSTR has negative revenue growth and an ROE of more than -30%, while COIN has negative EBITDA growth of over -40%. All of this suggests a lot of risk in the crypto and crypto-related company sector, making LFGY an attractive, more conservative bet that is also great for income investors. Risks Considering risks, the biggest one when just looking at performance would be a big crash in the crypto sector. While LFGY would outperform the sector, it would still show negative performance. At the same time, a huge rally, while benefiting the ETF, would lead to underperformance. While these two risks have to be considered, LFGY looks interesting in market phases like this that are driven by a lot of uncertainty. Conclusion In total, LFGY looks like a very interesting play at the moment, as it gives crypto investors more security in a phase where it is hard to say where the market is going. In a downward phase, LFGY will likely outperform Bitcoin, and the income could be used to buy the dip. In an up phase, the ETF would still show attractive performance, while the most beneficial situation would be for the market to go sideways, in which case LFGY would show strong returns, while the market does nothing. Because of this, LFGY currently gets a buy rating from me.
