MSTY: The MicroStrategy YieldMax ETF Has A 140% Yield And Lives Up To The Hype

Summary YieldMax MSTR Option Income Strategy ETF’s synthetic strategy around MSTR delivers extraordinary income, with a TTM yield of 140%, making it a net positive investment despite share price volatility. The ETF’s unique approach leverages MSTR’s Bitcoin exposure and options premiums, but investors must understand the risks and mechanics before diving in. MSTY’s total return, factoring in distributions, is competitive with BTC and offers a compelling case for adventurous income-focused investors seeking indirect crypto exposure. While not a traditional capital appreciation play, MSTY’s real income potential and innovative strategy have convinced me to consider starting a small position. I started going down a rabbit hole with the YieldMax ETFs , and while I am not necessarily fond of the synthetic strategy they employ, it’s certainly interesting. When I saw that the YieldMax MSTR Option Income Strategy ETF ( MSTY ) has paid $30.25 of distribution income over the past year and has a distribution rate over the trailing twelve months (TTM) of 140.55%, I started to run the data to see where the red flags were. There is a lot to unpack, but the bottom line is that MSTY has been a net positive investment despite the erratic share price, and long-term investors have gotten their entire investment back and then some. MSTY creates an ownership position around Strategy (or MicroStrategy) Incorporated ( MSTR ) by building a synthetic position and generates income from deploying a covered call strategy against the indirect long position. MSTR is a proxy for Bitcoin ( BTC-USD ), and the fund managers at YieldMax have figured out a way to generate a large amount of income because of how lucrative the premiums are in the options market due to the volatility. I am not a shareholder, and I haven’t been a fan of the strategy that YieldMax uses, but I can’t argue with the math, as MSTR lives up to the hype. There is a real reason why MSTY has over $3.7 billion in assets under management ((AUM)). The real question becomes whether it’s worth taking a shot at it after the previous history. This is not a capital appreciation play, and if you’re feeling adventurous, MSTY could add a tremendous amount of forward income to your portfolio, but everything about it is volatile. I will dissect what MSTY does and break down the numbers, but I will tell you that this is not a hype investment and that the income generated does exceed 100% yields. Seeking Alpha Risks to Investing in MSTY Investors should not look at the 140% distribution yield and automatically assume this will be sustained over the next year or that investing in MSTY is a sure bet. The reality is that just like every other investment, MSTY comes with real risks. Investors should do a fair amount of due diligence because MSTY has a unique strategy, and its mechanics are a bit complicated. MSTY has built a synthetic position around MSTR , which is the world’s largest BTC treasury company. MSTR owns 576,230 BTC, which means that MSTR’s BTC holdings are worth roughly $62.63 billion. MSTR’s success revolves around the adoption of BTC, which could be reversed at any point. If BTC becomes less desirable in the future, it would negatively impact MSTR and cause MSTY to decline in value. It would also negatively impact MSTY’s ability to generate the same level of distribution, as the premiums around MSTR’s option market could drastically change. Since its inception, MSTY has paid a monthly distribution as high as $4.13 and as low as $1.34. Investors should be very aware that they do not own BTC or MSTR directly through MSTY, and YieldMax is using a fancy strategy to create a position and generate income from these assets. MSTY could decline in value and see its distributions slashed if we enter into a crypto winter or BTC falls out of favor. The Math Checks Out for MSTY, and the Results Are Shocking YieldMax When I saw the TTM yield for MSTY, I thought it was a typo, but it’s not. MSTY went public on February 21 st , 2024, for $20. Since then, its AUM has grown to $3.76 billion, which is astonishing to me, but then again, when I see the distribution rate and distribution yield, I can understand why investors are piling into it. Since its inception, MSTY has paid $36.90 in distributions, which is an 184.49% yield on the initial share price. Even if shares were purchased at $25 in the first month before the first distribution was declared, the yield on cost would still be 147.59%. This is real capital that has been generated and paid out to its shareholders. Unlike some of the other ETFs in the YieldMax product line, MSTY is still above its initial share price, has never declined past -15%, and at one point, the investment had more than doubled its share price at the end of 2024. There is significant volume as 18.83 million shares were traded on Friday, May 23 rd, and there is a compelling argument to be made for taking a flier on MSTY. Even if I look at MSTY on a YTD basis, shares of MSTY were trading for $32.48, and over the past year, it has paid $30.25 in distribution income. This is a yield on cost of 93.12%. While shares of MSTY have declined by -$10.96 (-33.74%) over the past year, its distribution income makes up for the loss of capital. For every share, investors still have an asset that is worth $21.52 and has pocketed $30.25 in distribution income and the current forward yield if the annualized distribution over the past year was to stay the same, these shares would produce 140.55% in forward distributable income. No matter how you look at MSTY, it’s been a net positive investment over the past year or since its inception. Seeking Alpha The question that I had was how it compared to owning MSTR or BTC directly. Over the past year, BTC has appreciated by 58%, while MSTR has increased by 139%. This is where things get interesting because MSTY has declined by -33.74%, but the distribution income pads the losses and makes it a competitive investment. Shares of MSTY have declined from $32.48 to $21.52, but they generated $30.25 in distributed income. The yield on cost for MSTY over this period is 93.12%, and when the loss in capital appreciation is factored in, the total return from MSTY is 59.38%. MSTY has a total return that is nowhere near MSTR but slightly ahead of owning BTC. The aspect that is also interesting is that BTC doesn’t generate income, and investors still have an asset in MSTY worth $21.52 while continuing to generate forward monthly income. There is an argument that could be made that MSTY is an interesting proxy to gain indirect exposure to BTC because there is a scenario where all of the initial investment could be paid back from the distribution, and the cost basis could be $0 in the future which is something we don’t often see. Seeking Alpha How MSTY Works and Why Its Mechanics Need to be Understood Anyone who is interested in MSTY should read through its prospectus ( can be read here ). MSTY is an actively managed ETF that deploys an investment strategy to create synthetic exposure to MSTR and then utilizes a call option strategy to generate income. MSTY does not own MSTR directly and creates its indirect position by purchasing MSTR call options and selling MSTR puts options to replicate MSTR’s movement in the stock market. The call options that are purchased and the puts that are sold are done so with a 1-6 month term and a stroke price that is close to the current share price of MSTR when the contracts are established. The combination creates an indirect investment with full exposure in both directions for the duration of the options contracts. Once again, just because MSTY owns calls and sells puts on MSTR, it does not actually own MSTR shares. The income that MSTY generates is generated by using a covered call spread strategy once the long synthetic exposure is established. MSTY will sell call options on MSTR to generate income. Since MSTY doesn’t own MSTR outright, the calls that MSTY writes will be sold short with an expiration of 1 month or less and at a strike price that is at the money or up to 15% out of the money. This will cap the upside exposure to wherever MSTY writes the covered calls they are selling. If MSTR increases by 50% while this contract is written, MSTY will not reflect those gains, but they will replicate if MSTR declines by -50% because there is no downside protection built into the option strategy. The aspect that I find interesting is that MSTY has the latitude to deploy a covered call spread strategy when it believes there is a better opportunity, rather than sticking with straight-covered calls. MSTY may write call spreads rather than single-leg calls against its synthetic long position when it believes there is a better opportunity to do so. MSTY will do this when it believes MSTR will outperform, and it will take advantage of that by selling the call option it traditionally does to generate income and then buying a call option with a portion of the premium it collects at a higher strike price at the same expiration date. This is a big reason why the distribution income fluctuates so much: in some cases, MSTY is using part of the generated premium to purchase out-of-the-money calls on MSTR. By writing call spreads, MSTY can theoretically offset losses incurred from its short calls on MSTR if MSTR rises in value. This is a nice twist to the fund’s strategy because if MSTR goes on a large bull run, shareholders of MSTY will also benefit. Conclusion While I haven’t been fond of the YieldMax ETFs in the past, MSTY has my full attention. The math works in MSTY’s favor as this has been a net positive investment regardless of whether we look at it since inception or on a 1-year basis. The income generated is real, and the current TTM yield is 140% based on the current share price. MSTY deploys a call option strategy to generate income but also leaves the door open to utilizing a call spread strategy, which can uncap the upside gains to a degree. It’s hard to argue with the math behind MSTY, and while there are risks associated with this investment, it may be a situation where if you hold it for a long enough period, you could get your entire investment back from the distribution income and have a $0 cost basis on the remaining asset base. I’m not a shareholder, but I may actually start a small position in the future to force me to track MSTY’s progress. The 140% yield got my attention, and after running the numbers and dissecting the strategy, I will say that YieldMax may be on to something with MSTY.

Source: Seeking Alpha