Summary I maintain a hold rating on CONY due to Coinbase and Bitcoin trading near all-time highs, increasing risk of a pullback. CONY offers massive distributions (currently ~73% yield), but suffers from significant price decay and capped upside potential. The fund’s synthetic option strategy generates income but exposes investors to greater downside risk and underperforms COIN over time. CONY’s tax-efficient distributions and potential for 'house money' status favor patient, income-focused investors, but long-term growth is limited. Overview I've covered a ton of different YieldMax products over the last few months but YieldMax COIN Option Income Strategy ETF ( CONY ) is unique to me because it's the first option ETF I've managed to achieve house money status on. When I previously covered CONY, I issued a hold rating because I was becoming cautious on a shift in the momentum of Bitcoin ( BTC-USD ). However, Bitcoin just recently crossed $112,000 for the first time this week so perhaps my cautionary approach was not well timed. Now that I've held CONY for over a year, I wanted to revisit the ETF to provide some updated insights into its performance, distribution utility, and overall health. Looking at the performance over the last twelve months, we can see that CONY's price has deteriorated by nearly 50%. The fund's poor price resilience is something that I wish could be improved going forward and I hope that management finds a way to soften the downside risk. When including all distributions that were paid out to shareholders, the total return sits around 28.5% over the same period. This positive return can be attributed to the large starting dividend yield of approximately 73% . New distributions are announced every four weeks so the estimated yield can be different by the time you read this article. Data by YCharts Since my last coverage, there have been a lot of positive catalysts for Coinbase ( COIN ). For example, the company was added to the S&P 500 index and experienced several other favorable events that can drive revenues higher. As a result, I believe that CONY will be able to continue efficiently harnessing COIN's volatility and rewarding shareholders with large distributions. As Bitcoin becomes less volatile over time, this may smooth out the price of COIN and CONY as well. However, there are some downsides to CONY that I believe can be improved. So let's start by taking a look at the underlying fund strategy that the ETF implements to generate its distributions. Fund Strategy If you aren't familiar with the fund, CONY operates as a synthetic option ETF that aims to deliver large distributions from the premiums it collects on its underlying option strategy. The fund is capable of harnessing the underlying volatility of Coinbase to execute options. The term 'synthetic' simply means that CONY doesn't actually own any underlying common shares of COIN, so it is writing options against an asset that it doesn't actually own. This can significantly increase the risk profile of CONY because the fund can see much larger price losses compared to what COIN actually experiences. If we look at the holdings below, we can see that CONY doesn't have common shares of COIN listed. Instead, the fund is backed by treasuries and there are several different options listed. Since CONY doesn't actually own any underlying shares, it implements a creative approach to provide investors with a daily price change that mimics the movements of Coinbase. This is achieved by simultaneously purchasing ATM (at-the-money) call options and selling put options to replicate the daily price movement of COIN. In order to generate the option premiums that are used to fuel distributions, CONY sells OTM (out-of-the-money) call options that typically have a strike price somewhere between 0% to 15% above the current market price of COIN. The summary prospectus has a helpful breakdown that highlights all of the option strategies that the fund uses. CONY Holdings (Seeking Alpha) Despite using an OTM option strategy, CONY is likely to alwaysunderperform COIN from a price perspective. This is because the upside price momentum is capped at the selected strike price. Additionally, the upside is capped but the downside is not, so CONY will feel the full impact of price declines. This is my least favorite aspect of YieldMax funds because you are usually better off simply owning the underlying stock, rather than focusing on income. Looking at the chart below, we can see how Coinbase is up over 372% since CONY's inception. Meanwhile, CONY's price is down over 51.6% since its inception. Data by YCharts Performance & Risks: The Early Advantage CONY has an inception dating back to August 2023, and has a gross expense ratio of 0.99%. Looking at the performance since inception, CONY has been able to provide a total return of over 172%, which includes all distributions that were paid out to shareholders. Unfortunately, the price has deteriorated by more than 51.6% over the same time frame. The significant price deterioration really limits the appeal of the fund but this is just the risk that investors must be aware of when it comes to these single-stock synthetic option ETFs. Data by YCharts Looking at the total return comparison between CONY and COIN below, we can see that common shares of Coinbase has provided a total return of over 372%. In this context, CONY's total return of 172% no longer seems that impressive since it was severely outperformed by the common shares. CONY essentially captured less than 50% of COIN's total return but to CONY's credit, COIN experienced a significant rise from ~$80 per share up to ~$373 per share over this period. This sort of price growth is unusual and CONY's documents clearly lays out that it will experience a capped upside so there shouldn't be any surprises here. Coinbase also had a few different catalysts to help drive the price significantly higher over the last few months. Some of the notable catalysts include: Inclusion in the S&P 500 index. Coinbase secured MiCA license to offer crypto services in EU. Coinbase to deploy USDC stablecoin as collateral in US futures trading. US Senate passes stablecoin legislation . Data by YCharts The unfortunately truth is that nearly all the YieldMax funds eventually suffer from the same fate and this is my main issue. The large distributions and capped upside potential makes it very unlikely for these funds to ever experience large price swings upward over time. No matter what the catalyst is, many of these funds will never experience price gains. Just as an example, here are some different YieldMax ETFs and their respective price change since inception. YieldMax AAPL Option Income Strategy ETF ( APLY ) YieldMax TSLA Option Income Strategy ETF ( TSLY ) YieldMax NVDA Option Income Strategy ETF ( NVDY ) YieldMax META Option Income Strategy ETF ( FBY ) As we can see below, all of these funds have seen their price deteriorate over time. Nvidia ( NVDA ) recently became the first company to be valued at over $4T but that milestone is not reflected in the YieldMax fund. Meta Platforms ( META ) currently trades near its all time high, but that is also not reflected in the YieldMax fund. Data by YCharts The reality is that the investors that were able to best capitalize on these YieldMax funds were able to capitalize on the first movers advantage. If you initiated a position in these funds shortly after inception, you probably performed the best. However, that is simply because you would have allowed more time to receive distributions that can offset these declines. After all, CONY offers a massive distribution rate of nearly 73%. So technically, investors should be able to collect back their initial investment within a year and a half. 73% x 1.5 years = 109% in distributions return to shareholders. So despite all its flaws, I believe that patience and time can offset these large declines. A fund like CONY becomes more forgiving the longer you hold it. I went back and calculated all distributions that have been paid out to shareholders over the fund's lifetime. The fund launched at a share price of $20. When including all distributions paid since inception, we can see how early investors would now be sitting at 'house money' status. House money refers to the cross point where you receive more in distributions than what you paid per share. 2023 - $4.7479 in total distributions 2024 - $20.2980 in total distributions 2025 - $4.8392 in total distributions YTD Grand Total: $29.8851 Once you cross into house money status, you've essentially recovered your initial investment back through dividends. Therefore, your risk is significantly reduced going forward since you've now recovered your initial investment but you still hold the shares that pay you distributions every four weeks. However, Coinbase and Bitcoin now trades within territory of both their respective all time highs. A significant downward retraction from the highs will cause CONY's price to retract even further. Data by YCharts Dividend Utility As of the most recently declared distribution of $0.5354, the current distribution rate is about 73% annually. A new payout is declared every four weeks, so the estimated yield can be a lot different based on the time you are reading this. Looking at the dividend payout history below, you'll see one of the biggest issues I have with YieldMax funds. As the price and underlying NAV declines, so do the payouts. In CONY's prime, the largest payout was nearly $2.8 per share. Now that the price has fallen to its current range, I do not see the payouts ever returning to those levels. CONY Dividend History (Seeking Alpha) However, I wanted to specifically talk about the tax-efficiency of the distributions and how the ETF is flexible in terms of what accounts it can be utilized within. If you haven't already, I would highly recommend using the contact form on YieldMax's site and requesting to get added to their distribution list. This is the most accurate way to get the updated distribution every Wednesday for the different YieldMax funds. In the distribution table they provide, there is a column for ROC (return of capital). YieldMax Return of capital distributions aren't classified as income, and therefore aren't taxed as such. Instead, a return of capital distribution reduces an investor's cost basis and allows taxes to be deferred until the time of sale. Just for an example, let's imagine that you buy into a stock at $20 per share and it pays you a $2 per share dividend using return of capital. Instead of being taxed on that $2 per share dividend, your cost basis would be reduced to $18 per share. So with CONY, you are technically able to hold onto a long-term position until your cost basis reaches $0. At that point, all distributions received would be classified as long-term capital gains. The use of return of capital can be controversial because investors can interpret this as your own capital being paid back to you. However, this isn't necessarily the case all of the time. If YieldMax has a successful period of generating premiums with options, the distributions are still fueled by the premiums. The label of return of capital is simply a tax classification. Therefore, a position in CONY can be efficiently utilized within a regular brokerage account, which increases its overall flexibility. However, it should be noted that there are still portions of the distributions that are funded by net investment income, which has the least favorable tax treatment. Unfortunately, there's no clear way to know how much of the distribution will be taxable until your brokerage releases tax documents at the end of the year. Takeaway In conclusion, I maintain a hold rating on CONY at this time due to Coinbase and Bitcoin both trading near all time highs. I anticipate that a pullback in Coinbase would cause CONY's price to see a deeper downward move over the short term. The distributions can be tax-efficient and the fund becomes more forgiving the longer you hold it. Despite the tax-efficient distributions that can be received from the fund, I really dislike the continued price decay over time. CONY has been one of the least price resilient funds compared to its peers. If you don't have a specific need for income, I wouldn't suggest a position in CONY since it caps the upside price potential. If you are long on Coinbase, it would be much better to hold the underlying shares instead.
