The Most Intriguing ETF I’ve Ever Seen

| March 25, 2024
Source: Pixaby

I see newly announced ETFs hit my inbox almost daily, usually two or three at a time. We research, review, and recommend ETFs that use options strategies to boost yields or returns.

Many of these funds, especially some of the single stock covered call ETFs, sport eye-popping yields. While distribution yields are not the whole story, they do give us a lot to talk about.

As it happens, the prospectus of a new fund hit my desk last week, and I can’t wait to see the distribution payouts from this one – I think you’ll be interested…

The YieldMax ETFs have become popular with their single stock funds covering the most popular large-cap stocks. These funds have distribution yields ranging from 20% to over 100%. Yes, the YieldMax NVDA Option Income Strategy ETF (NVDY) has a current quoted yield of 108.46%. Yields change monthly depending on the declared dividends.

Recently, YieldMax issued a couple of fund of funds using the individual stock funds:

  • YieldMax Magnificent 7 Fund of Option Income ETFs (YMAG) with a quoted yield of 24.91%.
  • YieldMax Universe Fund of Option Income ETFs (YMAX) with a quoted yield of 29.34%.

These two funds have paid just one monthly dividend, so the track record is nonexistent.

The latest fund from YieldMax, the YieldMax Ultra Option Income Strategy ETF (ULTY), truly intrigues me. However, this fund has only been trading for a handful of days, so it’s far too early to get a good handle on whether the strategy will perform as expected.

The fund has a subadvisor that will screen stocks for implied volatility, trading volume, and liquidity. The subadvisor will select 15 to 30 stocks for a covered call option trading strategy.

The underlying stocks can be purchased directly, or indirectly with a synthetic long position with short at-the-money puts and long at-the-money calls.

Portfolio income will be earned from selling calls against the underlying stock positions.

High implied volatility means that call options will be more expensive. For a fund that sells calls, the greater premium levels should produce a higher dividend yield than the more traditional covered call ETFs. The yield could potentially be a lot higher.

Actual performance from ULTY will not be apparent for several months. The fund is using a unique stock screening strategy to potentially generate higher returns and yields.

This post originally appeared at Investors Alley.

Category: Dividend Yield

About the Author ()

Tim Plaehn is the lead investment research analyst for income and dividend investing at Investors Alley. He is the editor for The Dividend Hunter, an investment advisory delivering income investments with double digit growth in share price and dividend payments, and 30 Day Dividends, a specialty income service that takes advantage of opportunities for relatively fast, attractive profits around potential dividend payouts.

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