Investment firm floats yield-bearing ETF based on MicroStrategy stock

A specialized exchange-traded fund (ETF) firm called YieldMax has filed to launch the first yield-bearing ETF product based on shares in Michael Saylor’s Bitcoin holding company, MicroStrategy.

According to a Dec. 7 filing with the United States SEC, YieldMax has officially applied to launch its Option Income Strategy ETF based on shares in MicroStrategy, slated for release sometime in 2024.

If approved by the SEC, the ETF will trade under the ticker “MSTY” — just one letter off MicroStrategy’s pre-existing ticker “MSTR.”

Yieldmax’s pending ETF utilizes a “synthetic covered call” strategy, which involves a mix of buying call options and selling put options to earn revenue. These proceeds are distributed to holders of the MSTY ETF as monthly payouts.

Notably, the ETF will never own any spot holdings of MicroStrategy shares, exclusively generating income by trading MSTR derivatives. To decrease potential losses, the fund limits its upside exposure to a 15% gain on the call options each month.

Yieldmax says the monthly yields generated by the ETF aren’t directly dependent on the growth of MicroStrategy shares, meaning that investors would still earn yields on the ETF even if share MicroStrategy stocks were to take a significant hit.

Several commentators on X (formerly Twitter) questioned why someone would choose to invest in such an ETF instead of just buying the company stock or its options directly.

So first we trade the beta of SPX which is BTC, then we trade microstrategy which is the beta of BTC which is the beta of SPX, then we trade yieldmax which is beta of microstrategy which is beta of BTC, which is beta of SPX

Beta of beta of beta of beta, got it https://t.co/LrSXfbnP0X

— Marusha (@mattomattik) December 7, 2023

Yield-bearing ETFs are typically marketed to conservative investors looking to earn slightly above-average returns on the most volatile parts of the stock market. Because of the gain limits imposed by the fund managers, they are viewed as a cautious, yet potentially more profitable way of generating passive income from big swings in stock prices.

YieldMax offers a roster of 18 similar ETF products for other major tech companies companies including Tesla, Apple, and Nvidia.

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