YieldMax launches “Magnificent 7” option income ETF-of-ETFs

Jan 31st, 2024 | By | Category: Alternatives / Multi-Asset

YieldMax has introduced a new income-focused ETF-of-ETFs which diversifies across seven of the firm’s single-stock covered call ETFs centered on leading technology companies.

YieldMax launches “Magnificent 7” option income ETF-of-ETFs

The “Magnificent Seven” refers to a subset of prominent US technology-enabled companies.

The YieldMax Magnificent 7 Fund of Option Income ETFs (YMAG US) has been listed on NYSE Arca with an expense ratio of 1.28%.

The seven YieldMax covered call ETFs underlying YMAG are based on prominent US stocks which together are commonly referred to as the “Magnificent 7”: Apple, Amazon.com, Alphabet, Meta Platforms, Microsoft, Nvidia, and Tesla.

YMAG’s portfolio is equally weighted with rebalancing occurring every month.

Each underlying YieldMax ETF is actively managed and sub-advised by ZEGA Financial which enacts a synthetic covered call strategy on the target stock. A covered call is an options strategy whereby an investor holds a long position in an asset and sells or “writes” call options on that same asset in an attempt to generate more income (the additional income from the option’s premium) than the asset would otherwise provide on its own from dividends or other distributions.

Historically, during bear markets, range-bound markets, and modest bull markets, covered call strategies have generally outperformed their underlying securities. However, during strong bull markets, when the underlying securities may frequently rise through their strike prices, covered call strategies historically have tended to lag.

While covered call strategies do limit upside participation, they can generate steady income during turbulent periods and diversify an investor’s sources of yield away from equities and bonds which historically have struggled during rising rate environments.

In terms of the underlying YieldMax ETFs, Zega utilizes a mix of long call and long put options on the underlying stock to approximate a 100% long exposure to the target security. The firm then opportunistically sells one-month call options on the stock with strike prices between 5% and 15% above the current share price.

YMAG offers a blend of option-based income sources, seeking to harvest attractive yields from stocks that are not typically associated with income. The fund’s design strategically diversifies income streams while also diversifying the risk of potential losses associated with share prices surpassing the strike prices of the written call options.

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