Summary Yieldmax MSTR Option Income Strategy ETF offers a way for income investors to gain exposure to the volatility of Bitcoin and MSTR using advanced options trading strategies to generate a 140% TTM yield. MSTR's business as both an AI analytics leader and the largest Bitcoin treasury, adds layers to future growth prospects of the company and underlying Bitcoin asset, driving substantial speculation and volatility. NAV erosion should be monitored carefully, but new changes to the prospectus should help mitigate this risk further. I recommend keeping MSTY as a small portion of your portfolio, aiming to recoup your investment quickly and not relying on it for core income. Bitcoin ( BTC-USD ), MicroStrategy Incorporated ( MSTR ), recently renamed "Strategy", and YieldMax ETFs have carried immense volatility and speculation in their own rights over the past year. Put all three together and that's where Yieldmax MSTR Option Income Strategy ETF ( MSTY ) comes into play. If you're on the fence about Bitcoin, MSTR, and trading high-risk, high-reward options strategies to hedge uncertainty, I believe MSTY offers a compelling investment choice to income investors seeking high, monthly income by trading options on MSTR stock. Bitcoin Ownership Understanding (X) Let's get one thing straight. Most retail investors, myself included, do not fully understand Bitcoins applications potential, had no idea what Strategy did other than buy Bitcoin beyond a year ago, and we all mostly suck at trading options. Yet the beautiful thing with equity investing is we don't need to know much beyond this to make money like in real estate or private business, people smarter than us, like the veteran fund managers of MSTY, will take our capital and do the work for us to make this play. About MSTR Before we delve into the strategy behind MSTY, it's important to understand the underlying company the fund is trading options on. Strategy has been around since 1989 and is first and foremost, a global leader in enterprise analytics in the AI-powered business intelligence solutions space, empowering users with advanced data insights and decision-making tools. Strategy's products can be found in the US government, retail, banking, manufacturing, healthcare, and telecom industries. The company competes with other major players like IBM Corporation ( IBM ), Microsoft Corporation ( MSFT ), and Oracle Corporation ( ORCL ). In its own right, AI-powered software and it affects on how every company on Earth will do business in the future is of substantial interest, driving speculation in the market. Since 2020, the company began accumulating substantial amounts of Bitcoin through equity and debt issuance, making it the largest Bitcoin Treasury in the world. The value proposition for investors is exposure to Bitcoin for its inflation protection/store of value and exploring innovations in Bitcoin applications such as financial applications, blockchain analytics, and identity/security systems. However, currently the company is focused since late October 2024 on its 21/21 plan to raise $42B and in order to acquire more Bitcoin on top of the companies over half a million BTC, currently worth around $57B. MSTY Mechanics MSTY was launched on February 21, 2024 with the primary objective to generating high levels of monthly income by using synthetic covered call strategy "poor man's covered calls" as the fund does not directly own MSTR shares. The fund buys long call and put options to mimic MSTRs price movements, then sells monthly call options using purchased contracts to collect premiums. As always, covered call ETFs like MSTY hold US treasury bills and cash to cover these positions. We can actually see some of these positions, for example, like the $390 and $420 calls for June 20th expiry. MSTY Holdings (Seeking Alpha) Amassing $3.76B AUM with a TTM yield of 140.55%, the fund has largely taken advantage of both MSTRs price appreciation and underlying stock volatility driven by the overlying Bitcoin. The last 12 months the fund has paid out $30.25/share or about $2.52/month. The fund is currently trading at $21.52. During this timeframe and still at-large today, MSTY does not own any MSTR shares however a recent change to the prospectus, driven by the size of the ETF, now allows the fund managers to incorporate Swap contracts Purchasing call options "deep in the money" Purchasing equity securities like the underlying MSTR itself The hope here is to be able to stabilize the NAV and capture more upside of the MSTR price action. For a more detailed breakdown of MSTY, I recommend this interview with the fund managers of MSTY Jay Pestrichelli & Scott Snyder . MSTY Performance Below we see MSTY has done a nice job of capturing the gains from MSTR with less volatility with an impressive 272% total return compared to MSTRs 418% total return while Bitcoin doubled in price. This is one of the reasons investors interested in selling options themselves to capitalize on this volatility would buy MSTY, as selling one contract on MSTR requires around $40,000 or managing the cheaper, but more complex synthetic covered call strategy. Data by YCharts The high income MSTY is able to generate is driven by MSTRs extremely high volatility, which has come down to a 30-Day Rolling 56.63% volatility. For reference, the broader S&P 500 market is at around 20% while Bitcoin itself is around 32.60%. A pure play on Bitcoin's volatility is something like NEOS Bitcoin High Income ETF ( BTCI ) which has a distribution rate of almost 28% currently. Data by YCharts Risk Analysis The key risks with MSTY, like all options ETFs, is NAV erosion. This would stem from a significant, sharp drops in the price of Bitcoin and/or MSTR stock itself, reducing the synthetic long positions. Even if the call premiums are generating income as shares slide, the distributions would quickly turn into the "bad" kind of return of capital to investors, eroding the NAV further. In addition, as MSTR is using leverage like convertible notes and preferred shares to buy Bitcoin, price swings of either Bitcoin or MSTR stock will further amplify losses. As mentioned earlier, the changes to the prospectus should hopefully hedge NAV erosion as well. To manage this risk, I'd do a few things. First, DCA into MSTY as the price fluctuates plenty. I do think buys below $20/share are less risky than buys above $30/share. We've seen a full cycle and clearly, investors have been loading up below $25/share. The original NAV also started at $20/share, so that's something to keep in mind. Next, I would manage the risk by managing your greed in this trade. Obviously, income investors are drooling over this high yield and the prospect of getting all your money back in ~9 months and having a "free" asset to print money for you forever, regardless of the NAV or distribution amounts. However, even if this is achieved, I would not want to rely on the income of this fund to pay all my bills as if the volatility of Bitcoin and MSTR come down significantly, your income will drop proportionally. The Bitcoin Trinity (Reddit) My Strategy I recently started a small position in MSTY. With the institutional adoption and speculative applications, I believe the volatility around Bitcoin and by default it's largest holder, MSTR, will continue to be much higher than the broader market. This is necessary to keep the options premium high and should be desired by investors of MSTY. I would prefer the position make up no more than 5% of my income targets. For my $3,000/month financial security goal to cover my fixed expenses, that's about $150/month. Long-term, I wouldn't want it to produce more than $500/month of my passive income goal of $10,000/month. I plan to maintain an average below $25/share and hope to recoup all my money in one year or less. The reason I don't suggest whaling this ETF as a significant income strategy is even if you recoup all your money, if you start relying on that income and there is a major correction reducing the premiums, you will not have the financial security you set out to buy.
