YieldMax unveils option income ETF-of-ETFs

Jan 30th, 2024 | By | Category: Alternatives / Multi-Asset

YieldMax has launched an ETF-of-ETFs that seeks to deliver high monthly income by diversifying across the firm’s suite of covered call ETFs.

YieldMax unveils option income ETF-of-ETFs

YieldMax ETFs seek to harvest attractive yields from assets that are not typically associated with income.

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

YMAX invests equally across 17 YieldMax ETFs with the allocation being rebalanced every month. The fund’s portfolio may also be expanded in the future to include further newly launched YieldMax ETFs.

The line-up of underlying YieldMax ETFs currently includes 16 single-stock funds based on prominent US companies: Tesla, Apple, Microsoft, Nvidia, Amazon, Meta Platforms, Alphabet, Netflix, Coinbase, PayPal, JP Morgan, Exxon Mobil, Disney, Advanced Micro Devices, Moderna, and C3.ai

The 17th underlying YieldMax ETF is based on Ark Invest’s flagship disruptive technology fund, the $9.3 billion ARK Innovation ETF (ARKK US).

Each underlying YieldMax ETF is actively managed and sub-advised by ZEGA Financial which enacts a synthetic covered call strategy on the target stock or ARKK. 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 (or ARKK) to approximate a 100% long exposure to the target security. The firm then opportunistically sells one-month call options on the underlying security with strike prices between 5% and 15% above the current share price.

YMAX streamlines entry into YieldMax’s diverse range of products, offering a blend of option-based income sources. The fund’s design strategically diversifies income streams while also mitigating potential losses associated with share prices surpassing the strike prices of the written call options.

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