Why MSTY’s High Yield Could Fly Even Higher As Strategy’s Volatility Potentially Rebounds

Summary MSTY’s 140% dividend yield remains sustainable and could rise further, driven by MSTR’s unique volatility and leveraged Bitcoin exposure. Active management allows MSTY to generate strong premiums even as MSTR’s volatility declines, supporting robust and growing monthly payouts. MSTY’s structure (blending Treasuries, cash, and covered calls) mitigates downside risk and enhances yield potential in choppy or range-bound markets. Even with potential declines in volatility, MSTY is likely to provide huge yields, making it an incredible income vehicle. About four months ago, I covered the YieldMax MSTR Option Income Strategy ETF (NYSEARCA: MSTY ) for the first time, explaining why I believed that its 100% dividend yield was sustainable. My argument has played out well, with MSTY not only sustaining hefty payouts, but even raising them. Even in what has been a rather challenging period for Strategy ( MSTR ), including its shares experiencing a significant m/Nav compression in recent months, MSTY’s yield farming strategy keeps going strong. In fact, the ETF has achieved a total return of 6.64% since my article on Jan. 25th, outperforming the S&P 500’s total return of -0.8%, even with some NAV erosion on the way. Today, I aim to revisit the ETF’s investment case, and explain why today’s 140% dividend yield (on a TTM basis or 134% yield based on the latest payout’s run rate), not only remains sustainable, but could even move higher, much like what happened since my previous article. The MSTY Magic: It’s All About Harvesting Volatility Now, for those unfamiliar with the ETF, allow me to provide a quick overview of what it’s all about. So, at its core, MSTY is an engine turning the chaos carried by MSTR stock into cash flow. MSTY doesn’t own MicroStrategy shares directly. Instead, it uses a synthetic covered call strategy, blending U.S. Treasury bills, cash, and short-term call options on MSTR to monetize the stock’s underlying volatility. By selling out-of-the-money call options, like the ones you can see in the table below as per its latest holdings, MSTY collects hefty premiums, which it distributes as monthly dividends to investors. These payouts tend to be huge relative to the ETF’s NAV previously due to the massive premiums in MSTR’s options market. MSTY Holdings (Seeking Alpha) The reason this strategy performs so well with MSTR is that Strategy is no ordinary company. With over 568,000 Bitcoins on its balance sheet, it’s the largest corporate holder of the cryptocurrency and a leveraged bet on Bitcoin’s price. With trades and investors from all backgrounds utilizing the stock and its underlying derivatives for different strategies (e.g., holding a levered regulated play on BTC, betting on moonshot call options, or selling the volatility to generate income), MSTR moves more than Bitcoin itself. This volatility fuels rich option premiums, and MSTY captures exactly that (on the selling of the volume front). Defying the Odds: Stronger Dividends Despite Declining Volatility Typically, you’d think a dip in MSTR’s volatility would spell trouble for MSTY’s payouts. After all, lower volatility should mean slimmer option premiums. But surprisingly, MSTY has bucked this trend. As you can see, MSTR’s 30-day implied volatility has now declined to around 51%, a notable decline from its 2024 peak of over 150%. MSTR 1M Vol (Koyfin) Yet, MSTY’s dividends have held strong, even growing in recent months. How is this possible? MSTY Dividend History (Seeking Alpha) The answer lies in MSTY’s active management and overall flexibility. The fund doesn’t just blindly sell calls on 100% of its synthetic MSTR exposure. In fact, a few days ago, MSTY adjusted its strategy, writing calls on only about 75% of its holdings, leaving room to capture more upside during MSTR rallies. It also added out-of-the-money long calls at higher strike prices, like $455 and $475, to hedge against parabolic moves. This approach seems to allow MSTY to generate substantial premiums, even in calmer markets. But more importantly, even with the stock’s volatility on the decline, MSTR’s option premiums remain very rich, particularly due to the levered nature of MSTR. For instance, YieldMax’s Bitcoin ETF-focused ( YBIT ) yields around 81%, significantly lower than MSTY’s 140%. The difference? MSTR’s unique position as a leveraged Bitcoin play keeps its options pricier and way more active overall. The 140% Yield: Sustainable and Poised to Grow Of course, sustainability is the big question with any high-yield investment, let alone one with such a crazy high yield. Can MSTY’s 140% yield hold up, or is it going to all come crashing down? As I said in my initial article, there is no reason to think that MSTR’s high-premium options market is going to fade out any time soon, especially considering that MSTR has both accelerated its BTC accumulation trajectory and actively leveraged up its balance sheet through its two high-yield preferreds ( STRK )( STRF ). In fact, MSTY’s yield could very well climb higher under the right conditions. At the end of the day, MSTY’s yield is driven by MSTR’s volatility (even if that hasn’t prevented the fund from generating massive premiums, as I was just discussing). So if Bitcoin’s price swings become more violent (up or down), which is not unlikely after several weeks of tight consolidation, we could see premiums move even higher, and thus dividends move higher. In the meantime, even if volatility/premium/dividends were to all unwind, it’s still likely that MSTY will be yielding 50%/60%/70%, which would obviously continue to make it a highly attractive investment. The premiums are so high that even a meaningful decline would still make MSTR one of the best yield-farming vehicles. Another engineering beauty is that MSTY’s share price stability enhances its yield potential. Unlike MSTR, which can plummet in a BTC bear market, MSTY’s structure mitigates some downside through its Treasury and cash holdings. If its share price holds steady while dividends grow, the effective yield rises. This dynamic makes MSTY appealing in choppy or range-bound markets, where option premiums shine without the full downside risk of owning MSTR outright. Take the past six months, for example, where you’ve had MSTY outperform MSTR notably during the latter’s mNAV compression. MSTY/MSTR Returns (Koyfin) And yet, MSTY maintains the potential to outperform BTC over the long term, even if it does give some upside away against MSTR due to covered calls capping some of its gains during bigger common stock runs. MSTY/MSTR/BTC Returns (Koyfin) The Risk No investment is without risks, and MSTY is no exception. However, given the nature of the ETF, I believe that the only noteworthy risk is the possibility of a capped upside in a runaway MSTR bull market, as sold calls limit participation in sharp rallies, as I mentioned earlier. If Bitcoin soars to $200,000 and MSTR triples on a multiple expansion-driven enthusiasm, MSTY investors will miss out on some of those gains. Also, a prolonged Bitcoin bear market could slash MSTR’s volatility and stock price, shrinking option premiums and distributions. But still, I find it extremely unlikely that MSTR’s volatility will drop to levels that don’t produce at least a 30%, 40%, or 50% yield per year, as it will remain a levered BTC play that draws all types of investors who want to bet on each side of the equation that will keep premiums very high. This is the whole “volatility is vitality” argument Mr. Saylor has been trying to explain since MSTR adopted a BTC treasury strategy, after all. Why MSTY Shines for the Bold Look, MSTY isn’t for everyone. You need to buy into the idea that MSTR’s volatility, driven by Saylor’s innovative capital-raising strategies, is a deliberate feature. Once you understand why MSTR is inherently volatile and an ideal playground for market speculators, it becomes clear that an ETF like MSTY, designed to harness this volatility, can deliver exceptionally high, sustainable yields. If that clicks, holding MSTY makes perfect sense.

Source: Seeking Alpha