CONY: Re-Evaluate Your Risk Tolerance

Summary The YieldMax COIN Option Income ETF earned a hold rating from me in the past, given its consistent underperformance of its reference asset, and its older strategy. Since changing its options strategy, the fund has not been able to produce much more income, and the last two distributions are the lowest ever. Investors are cautioned to consider the reasons they own the fund, and if there are other strategies that could outperform CONY while providing the same exposure to income and risk. There is a specific mindset that investors need to have for these funds, and I cannot give single-stock covered call ETFs like CONY a buy rating. Too much risk remains on the table, and investors should consider how long they’re willing to grind down their price and cost basis at the same time. Introduction Regular readers of mine will know that I have a complicated relationship with YieldMax, going back and forth with their funds, typically assigning sell or hold ratings on single-stock covered call funds. In fact, I was the second analyst on Seeking Alpha to cover the YieldMax COIN Option Income Strategy ETF ( CONY ), and the first to give it a sell rating (although certainly not the last). For the record, the only YieldMax funds that have managed to get a buy rating out of me are its diversified fund-of-funds offering, like the Magnificent Seven fund YMAG , or the ” one of everything ” fund YMAX . I was off by an hour, for the record, from being the first when I published YieldMax Strikes Out Again With CONY , back in December 2023. Since then, the fund has outperformed the S&P 500 on a total return basis, despite a near-70% loss in its share price. Here is the performance against SPX from the publication of my first article. Data by YCharts Here is CONY compared to its reference asset, Coinbase Global, Inc. ( COIN ), which CONY sells calls against for income. Keep in mind that Coinbase doesn’t pay regular dividends, so its total return is entirely capital appreciation; that is why its price and total return lines have such a high correlation. This chart goes back to CONY’s inception, before I initiated coverage of it. Data by YCharts Unfortunately for the DRIP crowd, reinvesting dividends hasn’t saved anyone from underperformance. While total return on YCharts shows dividends paid, but not reinvested, we see CONY underperform COIN even with DRIP. You can play around with timelines and such using the tool yourself, but I just went back to CONY’s inception to get the largest data set I could. Dividend Channel Last Year’s Upgrade Note that I upgraded CONY to a hold in December 2024, but made it very clear that my upgrade was contingent on investors understanding several things about CONY: The price will continue to grind down endlessly, making total return the best metric to consider for overall returns. The fund will likely underperform buy and hold COIN strategies that sell shares instead of harvest volatility, given that COIN has a bullish future. Dividends will be unpredictable and variable. Position sizing is often more important than security selection, and investors were advised not to exceed a 2% allocation in an aggressive income portfolio. In my December 2024 coverage, I said that I was wrong about my December 2023 coverage, and that CONY could add value for some investors. Was I right to do that? Well, my thoughts on YieldMax funds have shifted over time. Back in 2023, when many of these funds were fresh, I held a far more negative view of them. A year later, several more fund launches, and a more-recent shift in options strategy , and I saw a world in which aggressive income investors loaded up on funds like CONY trying to capitalize on COIN’s high volatility. So long as these investors were getting the income they wanted from the fund, they were okay with the price falling, and adapting to the total return model of investing over a more traditional approach of buying, holding, and then selling price-appreciated shares of funds to shore up cash as necessary. I still believe much of what I said before, and will likely never own CONY or any other YieldMax single stock fund. I do not find value in them for my personal investing strategy, but mine is not the only one being employed by investors. To that end, let’s take a look at CONY and see if it warrants keeping the hold rating. While I am unwilling to issue a buy rating because of the risk that single-stock covered call funds pose to investors. CONY Holdings & Strategy The primary reason folks invest in CONY is so that YieldMax can execute a complicated options strategy on their behalf. This has resulted in a distribution rate that is very high, at times exceeding 100% and hitting 150% at its peak. Currently, the advertised rate is nearly 70%. YieldMax ETFs Recently, YieldMax made changes to their options strategy, which I started noticing back in February when I reviewed AMZY , the Amazon ( AMZN ) version of CONY. Their strategy has become more consistent with my expectations for the PnL of the strategy, and I encourage folks to check that article out for a detailed breakdown of the options strategy. For those wanting just the basics, here’s what you need to understand about the strategy. It operates like this: The fund uses its NAV to buy US Treasuries of various maturities, which generate a cash yield and secure its options trades. The fund then establishes a “synthetic long” position using a married call and put to replicate the PnL of long COIN stock, secured by the treasuries. Intraday, the fund trades short call spreads on COIN to generate income. When you put all of those together, you get top holdings that look like this: YieldMax ETFs Because the fund trades intraday, and is constantly changing, any modelling I do now will be out-of-date by the time this article is published. That doesn’t mean that we can’t take a look at the general PnL of the strategy . CONY Dividends CONY’s dividends, as expected, are erratic. This is because they are dependent on two factors: The volatility in COIN The skill of the fund managers Since there is no system (or at least, their system is a black box), we just have to hope that the managers are catching the timing on their options trades to avoid losses (which eats at the NAV of the fund) and produce high income. When looking at CONY’s dividend history, we can see that dividends are highly variable. While the managers can control their own trading, they don’t decide on the underlying volatility of COIN, which is a determining factor concerning options pricing, i.e., where the income comes from. Data by YCharts Despite recent volatility in COIN, we don’t see the corresponding higher income in CONY, indicating that something has gone wrong inside the black box, likely that the short call options were sold at inopportune times and bought back at even worse times, reducing the cash on hand. This last distribution was the lowest since inception. CONY Taxes One thing I have liked about the YieldMax funds in my last few reviews is the tax treatment they are striving for. Because of a rule at the IRS, options income is considered return of capital (“RoC”) when distributed to shareholders of funds. This means that distributions from CONY are largely RoC, which has an interesting tax situation. I recently covered this same topic with another YieldMax fund, and so I am going to share the tax guidance I made in my latest NVDY article , as it applies here as well. NVDY’s distributions are almost entirely (nearly 100%, if not 100% in most cases) classified as [RoC]… …distributions classified as RoC work against your cost-basis, and [do] not count as taxable in the year you received the income. Instead, the taxable event occurs when you sell the shares, which could be deferred until a more advantageous time at the investor’s discretion. This is a very useful tool for investors, and makes NVDY more competitive with long-stock, which also benefits from capital gains tax rates vs. income tax rates… It should be of note that if your cost basis hits zero on your position, any future distributions will be taxable in the year you received them, and classified as long-term capital gains. When looking at the YieldMax supplemental tax forms , make sure to select “Group C” when looking for CONY. As of 2025, forms are no longer being published under the individual funds, but in their respective groups. This means that forms under CONY on that site are all from 2024, and its 2025 distributions are held in the Group C forms. Looking through them, we see that the last distribution CONY made was considered 95% RoC. What net investment income (“NII”) does come through is largely from the treasuries positions. YieldMax ETFs Coinbase or Bitcoin? Naturally, if one wants to own CONY, they are likely bullish on COIN to some extent. Note that if you are very bullish, it will always be better for investors to own long stock of COIN over CONY. CONY will shine if COIN trades flat for a long period of time, which has not happened over COIN’s life. COIN typically trades in very volatile swings, which covered call funds notoriously miss out on because of their short exposure. If investors are bullish on COIN, they are likely bullish on Bitcoin, and may be interested in comparing CONY to the Roundhill Bitcoin Covered Call Strategy ETF ( YBTC ), which I covered last month . This is also a worthwhile investment on the income front and could easily compete with CONY for investor dollars trying to gain options-income exposure to these kinds of risky assets (crypto, crypto stocks, etc.). Over the lifespan of YBTC, as it is younger than CONY by a few months, it has gone back and forth with periods of outperformance and periods of underperformance from a total return perspective. Data by YCharts Suitability I am not changing my suitability guidance, especially now that we’re seeing CONY’s absolute dividends decline. While the yield has remained high, that is mostly due to the erosion of the price. This may eventually cause the fund to reverse split, like TSLY did , which is effectively a way for the fund to raise its price without providing appreciation to shareholders. This raising of the price would allow the fund to erode it back down again, restarting the process. Through that process, the total return could be very high, and so some investors may be interested in CONY. There is a clear argument for those who are willing to manually sell their own options or for those who are willing to buy-and-hold the underlying assets and sell shares when cash is needed, as both may outperform CONY moving forward, just as they have in the past. However, CONY offers investors the ability to have cash hit their account regularly, in relatively high amounts, regardless of its price erosion history. My argument is that so long as investors are on board with that, and that’s what they want, why not give it to them? On my recent NVDY article , I had a reader declare: Context is everything. Isn’t it really just like investing in a business? You buy equipment (the hi-yield ETF) which just churns out product (the distributions) on a regular and profitable income basis. In a business, over time, you depreciate your equipment (loss of NAV) yet it still churns out oodles of cash. If you’re a retired investor with a smaller-sized portfolio, this approach can potentially sustain you with income, whereas taking distributions from the principle of a smaller, low yield portfolio would eventually deplete your funds and leave you in the gutters. Whether you agree with this or not is a different story, and it is definitely not my mindset… But then again, I also have never owned any YieldMax funds personally. I’m not their target audience. To quote my last CONY article’s suitability section: To this end, I am now recommending that aggressive income investors consider up to a 2% allocation to CONY. Note that the words aggressive here are always subject to interpretation, but I really mean it that investors worried about losing their investments, even a little, should not consider CONY… I formerly rated this fund as a sell, since I believed at the time that it had no place in any portfolio. However, now I am rating CONY a hold. It may have a place in a very aggressive portfolio and in a very small amount. Remember that position sizing can often be more important than security choice. Conclusion Ultimately, the YieldMax COIN Option Income Strategy ETF ((CONY)) is keeping its hold rating from me, despite several major caveats that investors need to consider, like the potential for continued underperformance of CONY against buy-and-hold COIN or Bitcoin covered call funds like Roundhill’s YBTC. I advise that investors consider the fund very carefully, and go into the endeavor with the right mindset. Just as in my last article, I’m concluding that YieldMax funds are still “not for me,” and “not for most,” regardless of the positive change in strategy they have been employing over the last few months. Recent lows in distribution show that increased volatility isn’t helping CONY as much as previously thought, and the future of distributions is unclear. There is too much active manager risk to forecast future payments accurately. Thanks for reading.

Source: Seeking Alpha