MSTY: A Risky Buy Based On An Equally Risky Bearish Bitcoin Outlook

seekingalpha05-23

PashaIgnatov Today, I take a look at the Yieldmax MSTR Option Income Strategy ETF (NYSEARCA:MSTY). I've covered a similar exchange-traded fund, or ETF, before when I wrote about Advanced Micro Devices...

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I've covered a similar exchange-traded fund, or ETF, before when I wrote about Advanced Micro Devices...</p>\n\n<a href=\"https://seekingalpha.com/article/4695042-msty-a-risky-buy-based-on-an-equally-risky-bearish-bitcoin-outlook\">Source Link</a>\n\n</div>\n","source":"seekingalpha_fund","html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>MSTY: A Risky Buy Based On An Equally Risky Bearish Bitcoin Outlook</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nMSTY: A Risky Buy Based On An Equally Risky Bearish Bitcoin Outlook\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-05-23 00:51 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4695042-msty-a-risky-buy-based-on-an-equally-risky-bearish-bitcoin-outlook><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>PashaIgnatov Today, I take a look at the Yieldmax MSTR Option Income Strategy ETF (NYSEARCA:MSTY). I've covered a similar exchange-traded fund, or ETF, before when I wrote about Advanced Micro Devices...</p>\n\n<a href=\"https://seekingalpha.com/article/4695042-msty-a-risky-buy-based-on-an-equally-risky-bearish-bitcoin-outlook\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"BK4575","symbol_name":"芯片概念","start_time":0,"source_url":"https://seekingalpha.com/article/4695042-msty-a-risky-buy-based-on-an-equally-risky-bearish-bitcoin-outlook","article_id":"2437216827","we_media_id":null,"thumbnails":["https://static.seekingalpha.com/cdn/s3/uploads/getty_images/803420378/image_803420378.jpg"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2437216827","pubTimestamp":1716396709,"sourceInfo":{"source_id":"seekingalpha_fund","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"One of the downsides of selling call options on your own is that your upside potential is limited. That's because selling OTM calls might mean having to let go of your underlying","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"83042":"华夏比特币-R","BK4575":"芯片概念","BK4595":"比特币概念","LU1242518931.SGD":"Fullerton Lux Funds - Asia Absolute Alpha A Acc SGD","03439":"嘉实比特币","MSTR.AU":"MORNINGSTAR INTL SHARES ACT","09042":"华夏比特币-U","BK4550":"红杉资本持仓","LU1852331112.SGD":"Blackrock World Technology Fund A2 SGD-H","LU0198837287.USD":"UBS (LUX) EQUITY SICAV - USA GROWTH \"P\" (USD) ACC","LU1064131342.USD":"Fullerton Lux Funds - Global Absolute Alpha A Acc USD","BK7095":"多种金属与采矿","LU1951198990.SGD":"Natixis Thematics AI & Robotics Fund H-R/A SGD-H","03008":"博时比特币","BK4573":"虚拟现实","LU1951200564.SGD":"Natixis Thematics AI & Robotics Fund R/A SGD","LU0127658192.USD":"EASTSPRING INVESTMENTS GLOBAL TECHNOLOGY \"A\" (USD) ACC","IE0009356076.USD":"JANUS HENDERSON GLOBAL TECHNOLOGY AND INNOVATION \"A2\" (USD) ACC","MSTR":"MicroStrategy","LU1316542783.SGD":"Janus Henderson Horizon Global Technology Leaders A2 SGD","LU1923623000.USD":"Natixis Thematics AI & Robotics Fund R/A USD","LU2098885051.SGD":"JPMorgan Funds - Multi-Manager Alternatives A (acc) SGD","LU2458330169.SGD":"FRANKLIN SHARIAH TECHNOLOGY \"A\" (SGD) ACC","09439":"嘉实比特币-U","LU2458330243.SGD":"FRANKLIN SHARIAH TECHNOLOGY \"A-H1\" (SGDHDG) ACC","03042":"华夏比特币","BK4529":"IDC概念","AMDY":"YieldMax AMD Option Income Strategy ETF","LU1988902786.USD":"FULLERTON LUX FUNDS GLOBAL ABSOLUTE ALPHA \"I\" (USD) ACC","IE0004445239.USD":"JANUS HENDERSON US FORTY \"A2\" (USD) ACC","LU0889565833.HKD":"FRANKLIN TECHNOLOGY \"A\" (HKD) ACC","09008":"博时比特币-U","BK4023":"应用软件","BK4532":"文艺复兴科技持仓","BK4554":"元宇宙及AR概念","LU0082616367.USD":"摩根大通美国科技A（dist）","FDN":"First Trust Dow Jones Internet I","LU0719512351.SGD":"JPMorgan Funds - US Technology A (acc) SGD","AMD.AU":"Arrow Minerals Ltd","LU1803068979.SGD":"FTIF - Franklin Technology A (acc) SGD-H1","AMD":"美国超微公司","LU1242518857.USD":"FULLERTON LUX FUNDS - ASIA ABSOLUTE ALPHA \"I\" (USD) ACC","LU1989764664.SGD":"CPR Invest - Global Disruptive Opportunities A2 Acc SGD-H","BK4585":"ETF&股票定投概念","IE00BMPRXN33.USD":"NEUBERGER BERMAN 5G CONNECTIVITY \"A\" (USD) ACC"},"translate_title":"MSTY：基于同样高风险的看跌比特币前景的高风险买入","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"83042":0.6,"03042":1,"MSTR.AU":1,"MSTR":1,"AMDY":1,"AMD.AU":1,"03008":1,"09439":1,"03439":1,"AMD":1,"09042":1,"09008":1,"FDN":0.9,"XBTmain":0.7,"BTCmain":0.7},"content_text":"PashaIgnatov Today, I take a look at the Yieldmax MSTR Option Income Strategy ETF (NYSEARCA:MSTY). I've covered a similar exchange-traded fund, or ETF, before when I wrote about Advanced Micro Devices, Inc. (AMD) being paired with the YieldMax AMD Option Income Strategy ETF (AMDY) in this article. MSTY is offered by the same issuer but focuses its efforts on maximizing investment returns on MicroStrategy Incorporated (MSTR) using a similar options strategy. The MSTY distributions thus far have been excellent, but the fund is very new, having been incepted in February 2024. There aren't any trends to indicate that such returns might persist during the volatile times ahead, but even a portion of such returns should help offset any losses on your MSTR holding. As an MSTR investor, you're probably painfully aware of the near 40% drawdown since the stock peaked in late March, so in a sense, this is a way to redeem yourself and take advantage of an options strategy via an ETF even if you're unfamiliar with it. As a matter of fact, you should ideally be holding a short position on your MSTR asset, but if you'd rather not do that but still expect the stock to lose ground over the short term, this might be a good ETF idea to explore. Let's look at this interesting fund in greater detail. How Does MSTY Work? Since this is an options play on a single security, the risks are naturally elevated because of the lack of diversification. The distributions are based on option-writing income in the form of premiums on each contract the fund manager underwrites. They're not based on any dividends the company might pay in the future (it currently doesn't), and if you strip out the options income, you'll see a 30-day SEC yield of just 0.25%. The reported distribution rate, on the other hand, includes options-based payouts and is extrapolated from the last paid distribution, which is why it's an almost unbelievable 88.25% based on the NAV at the last report. The ETF's shares are currently trading at a slight premium to NAV, or $34.99 as I write this. It's fairly rare that this ETF trades discounted to NAV, as you can see from the Premium Discount chart and table below. When that happens, it presents a slight additional upside opportunity for the overall yield. Fund Website If you look at it from a dividend yield perspective, it's a more subdued 19% because it's based on dividends paid for the current year, so the total two-month payout of $6.65 against a current market price of $34.99 gives you a 19% yield. Still, if this can be sustained at even half this level for the rest of the 12-month period under consideration (April 2024 to March 2025), we're looking at a potential yield of nearly 10%. Not a bad deal for a relatively high expense ratio of 0.99%. Is It a Good Idea to Invest in MSTY Now? One of the downsides of selling call options on your own is that your upside potential is limited. That's because selling OTM calls might mean having to let go of your underlying assets if the price rises beyond your strike price. That's also why such an ETF is a good idea because your own MSTR holdings aren't on the block. Rather, you sacrifice the (exorbitant, some might say) expense ratio in exchange for not having your own assets at risk of being called away. The fund also holds an equal amount of same-dated Put options, both at a strike of $1540. This \"synthetic\"' covered position comprises a little over 70% of the fund's holdings, with the rest in U.S. treasuries and a few other short-dated calls. These are dynamic figures and were valid as of May 21. However, the fund's home page was updated recently, and it indicates that the call options now comprise 21% of holdings, while the Put collar is at -12%. More details on these FLEX (Flexible Exchange) options contracts can be found in the fund's prospectus. The bottom line here is that the fund is clearly betting on the stock to go down further, and probably faster. That being said, this strategy will work when the underlying security is clearly bloated in terms of valuation, and that's what it looks like as we explore later on. In effect, the fund's managers are betting on the stock declining significantly over the short to medium term. So, in that scenario, such an unhedged short-call strategy, as this is also known, might perform really well, and that's what we've seen with the distribution over the past two months that the fund has been trading on secondary markets. Looking forward, it's important to assess your position on MSTR itself. If you've been holding MSTR for anywhere upwards of a year, you've seen the stock return as much as 500% during its late March peak. Thereafter, you may have given up around half of that, which is still a handsome return any way you look at it. Therefore, the only reason you might want to offset any additional losses is to ensure that you retain what's left of your unrealized gains. That's one scenario in which you might want to engage in this risky ETF play. The other scenario is if you've invested sometime after the sharp rally in February (not coincidentally, I'm assuming, the same month in which this ETF was incepted), or after the sharp pullback in early March, you might even be sitting on unrealized losses. In this scenario, such an ETF might help you come back to breakeven before you finally decide to offload your core MSTR holding. That's if you're bearish on where the stock will go from here. In those two scenarios, the ETF can potentially protect your gains or offset your losses. A third scenario would be that you don't own MSTR, but you're bearish due to the high valuation metrics, and you'd like to take advantage of the ongoing downturn since the March peak. In a sense, while the company's valuation is certainly of concern, the real issue is its Bitcoin holdings. As the world's largest corporate entity holding the cryptocurrency, much of MSTR's valuation is based on its 214,400 Bitcoin USD (BTC-USD) cache that was valued at $14 billion at the time of its Q1 earnings report at the end of last month. With BTC-USD now at the $70k level, its average purchase price of $35k makes it seem like a good investment. However, we have to keep in mind that since peaking at $73k+ around mid-March, with MSTR also peaking shortly after, the cryptocurrency is down considerably but gaining ground and has broken past $70k even as I write this. That's not good for MSTY. On the valuation side, because of this unique holding, the company's multiples have been off the charts, and remain so. For instance, MSTR is now trading at 7,525x its TTM cash flow and 60 times forward sales, and in terms of enterprise value over EBITDA, it's trading at a nearly 380x multiple. That's probably why MSTR's short percentage of float is currently at 21%. I don't see a risk of a short squeeze here because the stock is nowhere close to its 52-week low of $266, short interest is on the lower end of the 20% to 50% short interest range that could signify an impending squeeze, and it's difficult to peg a fair value to this stock because of weakening cash flows and negative earnings, so a discounted cash flow (\"DCF\") analysis wouldn't make sense in this case. Whichever way you look at it, unless you're extremely bullish on Bitcoin, you can't be bullish on MSTR. So, barring the most bullish BTC-USD investors, everyone else seems to agree that the only way for the stock to go from here is down, which is what makes MSTY an attractive (albeit risky) ETF options play on MSTR.  That said, because of the revival in cryptocurrency interest, I'd hesitate to assign a Buy to MSTY. Currently, with BTC-USD rallying past $70k, I wouldn't recommend MSTY, which is fine if you're holding MSTR because the stock is rallying in tandem, gaining nearly 13% over the past two trading days. However, I'd recommend keeping this ETF on your watch list for when the Bitcoin euphoria recedes and MSTR's fundamentals start to force the stock downwards again. For now, Yieldmax MSTR Option Income Strategy ETF is a Hold but a definite addition to your watch list.","kind":"highlight","is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.3","shortVersion":"4.29.3","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2437216827"}