CONY Vs. COIN: Chasing High Yield Or Direct Exposure? A Look At Investment Options

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YieldMax COIN Option Income Strategy ETF (CONY) uses options on Coinbase (COIN) to generate income, offering high distribution rates near 100%.CONY's strategies include synthetic covered calls and ...

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A Look At Investment Options","media":"seekingalpha","content":"<div>\n<p>YieldMax COIN Option Income Strategy ETF (CONY) uses options on Coinbase (COIN) to generate income, offering high distribution rates near 100%.CONY's strategies include synthetic covered calls and ...</p>\n\n<a href=\"https://seekingalpha.com/article/4727913-cony-vs-coin-chasing-high-yield-or-direct-exposure-look-at-investment-options\">Source Link</a>\n\n</div>\n","source":"seekingalpha","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>CONY Vs. COIN: Chasing High Yield Or Direct Exposure? 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COIN: Chasing High Yield Or Direct Exposure? A Look At Investment Options\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-10-21 05:18 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4727913-cony-vs-coin-chasing-high-yield-or-direct-exposure-look-at-investment-options><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>YieldMax COIN Option Income Strategy ETF (CONY) uses options on Coinbase (COIN) to generate income, offering high distribution rates near 100%.CONY's strategies include synthetic covered calls and ...</p>\n\n<a href=\"https://seekingalpha.com/article/4727913-cony-vs-coin-chasing-high-yield-or-direct-exposure-look-at-investment-options\">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":"CONY","symbol_name":"YIELDMAX COIN OPTION INCOME STRATEGY ETF","start_time":0,"source_url":"https://seekingalpha.com/article/4727913-cony-vs-coin-chasing-high-yield-or-direct-exposure-look-at-investment-options","article_id":"2477015236","we_media_id":null,"thumbnails":["https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1956620472/image_1956620472.jpg"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2477015236","pubTimestamp":1729459109,"sourceInfo":{"source_id":"seekingalpha","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"YieldMax COIN Option Income Strategy ETF (CONY) uses options on Coinbase (COIN) to generate income, offering high distribution rates near 100%.CONY's strategies include synthetic covered calls and cre","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"CONY":"YIELDMAX COIN OPTION INCOME STRATEGY ETF"},"translate_title":"CONY与COIN：追逐高收益还是直接敞口？投资选择一览","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"CONY":0.9},"content_text":"YieldMax COIN Option Income Strategy ETF (CONY) uses options on Coinbase (COIN) to generate income, offering high distribution rates near 100%.CONY's strategies include synthetic covered calls and credit call spreads, providing limited upside but significant income from options premiums.Historical performance shows a 101% return since inception, but the fund's upside is capped, and it mirrors COIN's downside risks.Elevated implied volatility in COIN benefits CONY's income but poses risks; investors should be cautious of COIN price declines and volatility drops.   Nutthaseth Vanchaichana/iStock via Getty Images The YieldMax COIN Option Income Strategy ETF (NYSEARCA:CONY) is a part of the YieldMax ETF family, which actively trades stock options on Coinbase Global, Inc. (COIN). The fund trades options on COIN to generate income and then distributes this to investors regularly (similar to a dividend payment). Created in August 2023, the fund is relatively new and manages assets with a total value of $761 million. Since its inception, the fund has achieved a total return of 101% for its investors, which includes the distributed payouts. Currently, the fund advertises a distribution rate of 100%, which seems incredibly high. The stock performance can partly be explained by the strong performance of COIN and the underlying volatility of this stock, but we need to carefully analyze the probability the fund can keep delivering the advertised distribution rate of 100%. For the fund's active management, YieldMax charges an expense ratio of 1%. In the below section, we will take a look at the investment strategy of CONY, its historical performance, and the future outlook for the fund. We will then end the article with an investment recommendation based on our analysis and address whether CONY is a suitable alternative for an investment in COIN.  Trading Strategy CONY aims to generate investment income for its shareholders by trading options on COIN. They apply 2 option strategies here: 1) Standard Strategy: Selling Synthetic Covered Calls on the underlying stock. This means the fund will sell put options on the underlying stock and simultaneously buy call options to simulate a synthetic long position in the stock. Once this is done, a call option is written on this position to generate option income by collecting the premium of the sold call option. 2) Opportunistic Strategy: Selling Credit Call spreads. To carry out this strategy, the fund will sell an out-of-the-money call option and buy a call option which is even further out of the money. The fund currently has the following positions:  Short COIN $222.5 call option expiring on October 25th, 2024 Long COIN $240 call option expiring on October 25th, 2024  Both strategies have a \"limited upside potential\", meaning their potential gain is capped. For the above positions, for example, the maximum profit is the net premium CONY receives (the difference between the sold put option premium and the bought put option). The potential loss of a credit call spread has a limited downside, but this is not the case for the synthetic covered call strategy (here the downside potential is similar to the one of a long COIN stock investment). In addition to its options strategy, CONY also invests in short-term U.S. Treasuries to earn income on its (non-invested) cash position. The income from these options trades is then distributed to the fund's investors. In the case of CONY, these distributions have been notably substantial, currently offering strong distribution yields near the 100% level. CONY Distributions (Yieldmax website) Examining the historical distribution rate, we can see it peaked in April 2024 at $2.79 per share but has since experienced a decline, with the most recent October distribution standing at $1.11 per share.  The main question here is whether CONY can keep paying these elevated (100%) distributions to their investors in the future. Historical Performance The stock price of COIN has historically been volatile, and closely correlated with the price of Bitcoin. This elevated level of volatility has created favorable conditions for CONY, as their option trades benefit from high volatility in the stock price of COIN. When we compare their performance of the last year, we can see CONY delivered an ROI of 101%, whereas COIN delivered almost twice that return (198%). As the upside potential of CONY her option trades is limited, we cannot expect the fund to keep up with the performance of COIN during strong bull markets (as we have seen in the past year).  1Y Performance (Seeking Alpha) When we focus on the performance during a correction, we can see CONY declines in line with COIN. During the decline in September 2024, CONY declined a bit less than COIN, but the difference is small. CONY Price Performance (Seeking Alpha) This highlights the main issue for investing in CONY:  The upside potential is limited The downside potential is unlimited (at best, it's a bit offset by the generated option income).  The benefit of investing in CONY is the generated income, which is distributed back to investors. With distributions of 100%, investing in CONY still seems like an attractive alternative. A key factor we need to take into consideration here is the implied volatility of COIN's stock. The higher this volatility, the higher the income will be on the option trades CONY executes. When we look at the historical IV levels for COIN, we can see they have been rather elevated. Implied volatility of COIN (Marketchameleon.com) The above chart shows the implied volatility has been fluctuating around the 60%-80% level, which is high. The volatility spikes during times of earnings announcements, as investors are anticipating above-average volatility during these periods. The elevated implied volatility on COIN explains how the fund can realize distribution rates of 100%, as trading options on COIN has been highly lucrative. The elevated implied volatility of COIN presents both advantages and risks. On one hand, it increases the value of options, benefiting shareholders. On the other, it signals the possibility of large price fluctuations, which could result in losses. As mentioned in the previous section, CONY's options trades don't offer any real protection against this downside risk. Future Outlook The main question now is: should we invest in CONY? Can CONY offer a better risk/reward ratio compared to a standard investment in COIN shares? Investors who are bullish on COIN and anticipate the stock still has much more upside potential would be better off investing in COIN common shares directly. This investment will yield superior returns, as long as COIN's market value keeps growing. For me personally, I would take a conservative approach here, as COIN's market value is currently $54,7 bln which gives it a P/E ratio of 40 and a P/B ratio of 10. While COIN's recent earnings were promising, its stock price, like any other, is subject to market fluctuations and has inherent risks. The company's future performance remains uncertain, as it's heavily influenced by the broader cryptocurrency market's trading activity. For investors who believe COIN has moderate growth potential, CONY ETF might be a more appealing choice. This ETF can generate income from COIN's price fluctuations, even without substantial price increases. If COIN's stock price remains relatively stable, the ETF could still benefit from income earned through option trading, provided market volatility is sufficient. Seeking Alpha's current Quant Rating implies a \"Hold\" status for COIN, which aligns with my personal view, making CONY our preferred investment alternative.   COIN Quant Rating (Seeking Alpha) Risks & Considerations Like any option-income ETF, investing in CONY carries risks. If COIN's stock price plummets, even CONY's sophisticated options strategies may not fully protect your investment. While option income can mitigate losses, your overall investment will still be affected. Another thing to keep in mind is the underlying volatility of COIN. The options premiums that CONY collects are closely tied to how much COIN is expected to fluctuate. If things calm down, the income from the options trades will likely decline and the distributions can be lowered. Conclusion CONY is an excellent choice for investors who are optimistic about COIN's future and seek additional income through regular distributions. Throughout 2024, these distributions have been notably high, mirroring COIN's stock performance. Investors should be mindful of the downside risks of owning CONY, such as a decline in the stock price of COIN or lower volatility levels.   In conclusion, we suggest CONY shares for investors who are optimistic about COIN's future and aim to earn monthly income from option-based strategies.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"analysis","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":"4.29.1","shortVersion":"4.29.1","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/2477015236"}