Ultra-high-yield single stock covered call ETFs are gaining traction, particularly the YieldMax MSTR Option Income Strategy ETF (MSTY), which boasts a striking 75% yield. However, the underlying stock, Strategy (MSTR), has plummeted about 67% from its peak, raising questions about the sustainability of these yields. MSTY generates income by selling call options on Strategy, yet its performance has lagged significantly, with a total return loss of 47% over the past year, compared to a 54% loss for Strategy itself.
The allure of high yields often overshadows the risks involved. MSTY’s strategy, which synthetically creates long positions through options, does not align well with the high volatility of Strategy stock. This volatility increases the likelihood of options being exercised, limiting upside potential while capturing full downside risk. Consequently, while MSTY may provide steady income, its net asset value has eroded, diminishing the appeal of its yield.
For market professionals, the key takeaway is clear: while ultra-high-yield ETFs like MSTY may seem attractive, their historical performance suggests that the income generated may not compensate for the significant risks and potential losses in total return.
Source: fool.com