MSTY: Two Strategies, One ETF, Effective Only In A Sideways Trend

seekingalpha11-23

A 45% forward dividend yield is not “free money.” Income strategy or trading as well, caution is required.MSTY employs covered call and credit call spread strategies, which can limit gains in bullish ...

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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: Two Strategies, One ETF, Effective Only In A Sideways Trend\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-11-23 20:31 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4739814-msty-two-strategies-one-etf-effective-only-in-a-sideways-trend><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>A 45% forward dividend yield is not “free money.” Income strategy or trading as well, caution is required.MSTY employs covered call and credit call spread strategies, which can limit gains in bullish ...</p>\n\n<a href=\"https://seekingalpha.com/article/4739814-msty-two-strategies-one-etf-effective-only-in-a-sideways-trend\">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":"MSTY","symbol_name":"YIELDMAX MSTR OPTION INCOME STRATEGY ETF","start_time":0,"source_url":"https://seekingalpha.com/article/4739814-msty-two-strategies-one-etf-effective-only-in-a-sideways-trend","article_id":"2485203277","we_media_id":null,"thumbnails":["https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1250588896/image_1250588896.jpg"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2485203277","pubTimestamp":1732365083,"columns":[],"sourceInfo":{"source_id":"seekingalpha","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"It’s quite negative. Perhaps it could be included in an income portfolio strategy, it's possible, though I’m not here to discuss that. However, for anyone considering MSTY as an alternative to MSTR, to be completely honest, this ETF seems designed to deliver no alpha.  MSTY: What Is It, and How Does It Work?Standard Strategy – Covered Calls: selling covered call option contracts with the goal of generating income from option premiums. Opportunistic Strategy – Credit Call Spreads: selling a call option while simultaneously buying a call option . The objective is to generate net income while limiting potential losses. For a deeper understanding of these strategies, refer to this table taken from the prospectus.  YieldMax MSTR Option income Strategy ETF  The strike price is typically set at 0%-15% above the current price of the underlying stock at the time of sale. Then, the fund \"rolls\" the sold options by selling new call options with a future expiration date while s","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"MSTY":"YIELDMAX MSTR OPTION INCOME STRATEGY ETF"},"translate_title":"MSTY：两种策略，一种ETF，仅在横盘趋势中有效","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"MSTY":0.9},"content_text":"A 45% forward dividend yield is not “free money.” Income strategy or trading as well, caution is required.MSTY employs covered call and credit call spread strategies, which can limit gains in bullish markets and incur losses in bearish markets.MSTY may perform well in a sideways market or a slight downtrend of MSTR.Given MSTR's volatility linked to BTC/USD, in my opinion, this scenario is currently unlikely due to BTC's proximity to $100K.   Klaus Vedfelt  I would like to begin my analysis with this sentence, taken from the YieldMax ETF website. Investing in the fund involves a high degree of risk. And I think that's the right approach to start my analysis: ETFs like these are highly complex. That said, I must admit to being a \"masochist\" when it comes to financial engineering and considering the recent boom in MicroStrategy's (MSRT) stock price, the YieldMax MSTR Option Income Strategy ETF (MSTY) has become too intriguing not to explore further. So, what’s my opinion? It’s quite negative. Perhaps it could be included in an income portfolio strategy, it's possible, though I’m not here to discuss that. However, for anyone considering MSTY as an alternative to MSTR, to be completely honest, this ETF seems designed to deliver no alpha.  MSTY: What Is It, and How Does It Work? For an ETF launched just last year, MSTY has a remarkably high Assets Under Management (AUM), currently around $1.21 billion. This indicates that it has been highly appreciated in this period. Perhaps behind this interest lies its unmatched forward dividend yield (FWD) of 45.06%. I say \"perhaps\" because, when you look at other products offered by YieldMax ETFs, MSTY stands out as one of the best performers, alongside PYPY. Peers (Seeking Alpha) Pretty curious, and the reasoning behind this ETF Yield is quite an interesting combination of “passive” strategy rules. Reading its prospectus could literally make your head spin, but I must admit I enjoy diving into it. Two Strategies, One ETF The price of this ETF depends on the combination of two strategies, both quite common in options trading. The fund purchases call option contracts on the underlying securities, typically with a duration of 1-6 months and strike prices set at the current price of the underlying security. Then…  Standard Strategy – Covered Calls: selling covered call option contracts with the goal of generating income from option premiums. Opportunistic Strategy – Credit Call Spreads: selling a call option while simultaneously buying a call option (with a different strike price). The objective is to generate net income while limiting potential losses. For a deeper understanding of these strategies, refer to this table taken from the prospectus.  YieldMax MSTR Option income Strategy ETF (yieldmaxetfs) The strike price is typically set at 0%-15% above the current price of the underlying stock at the time of sale. Then, the fund \"rolls\" the sold options by selling new call options with a future expiration date while simultaneously redeeming the existing options, effectively closing the previous position.  What does it mean If the underlying asset rises significantly, considering the covered call strategy (standard), the fund forfeits gains beyond the strike price of the sold calls. To understand that, let's take an example different from MSTR. Simply, consider the case of the price of the underlying at the time of selling the calls being $100 and the strike price of the sold calls being $110 (according to the fund strategy). If the underlying rises to $150, the fund only profits up to $110, losing all potential gains between $110 and $150. However, even with the credit call Spread strategy, there is a significant probability of an opportunity cost: when the price of the underlying increases substantially, the fund does not participate in gains between the strike price of the sold call and the purchased call. For example, if the sold call has a strike price of $110 and the purchased call has a strike price of $120, then if the underlying rises to $150, the fund only gains between $110 and $120 (due to the purchased call) and nothing beyond $120. But what happens if the underlying asset falls significantly? Considering the covered call strategy, the fund incurs losses proportional to the decline in the underlying asset’s price, offset only slightly by the premium received from selling the call options. Using the same exact example, where the price of the underlying is $100 and the strike price of the sold call is $110, if the underlying falls to $80, the fund loses $20 per share, with only minimal compensation from the premium received (gross of costs). The same considerations can be made for the credit call spread strategy.  MSTY, MSTR (Seeking Alpha) Risk The increase in the spread following the recent boom in MSTR shares compared to MSTY is a clear example. The spread would also have widened in a negative scenario, especially if sudden and unexpected, although partially offset by the coverage provided by the option premiums. There may be technical moments when holding MSTY is advantageous. For example, during the downtrend of MSTR from March 2024 to May 2024, the spread between the total returns of MSTY and MSTR flattened. This occurred because MSTY's strategy of selling call options on MSTR provided additional income, which helped offset the losses from the decline in MSTR's share price. Consequently, MSTY's total return was less negatively impacted compared to MSTR during that period. MSTR-MSTY-BTC/USD (TradingView) That strategy should provide a real advantage if the market remains sideways, meaning the underlying asset's price moves little or stays within a narrow range (for example, +/-2%/5% relative to the initial price). In this case, in both the covered call and credit call spread strategies, the fund retains the full premium of the call. Does it make sense to expect a sideways market?  In my opinion, no. MSTY follows MSTR’s price movements, and MSTR is directly linked to the BTC/USD price. With BTC/USD at $100K, it is likely to be one of the most volatile zones of the past year. Therefore, we are in a period of strong directionality. If MSTR continues its upward trend or begins a sharp downtrend, MSTY is unlikely to outperform MSTR. At the same time, we have recently observed a slight discrepancy between BTC/USD movements and those of MSTR and MSTY. This could indicate a potential breaking point, but it is primarily due to recent breaking news about MSTR.  MSTR,MSTY,BTC/USD (TradingView) Conclusion Without considering any sort of “income strategy portfolio,” which I won’t discuss now, and despite my admiration for financial engineering, I believe there isn’t a significant benefit or alpha behind MSTY. I’m not suggesting that it will necessarily decline, as that depends on the movement of the underlying asset, which I’m not addressing here.  However, I would like to highlight that, in my opinion, this type of strategy is unlikely to generate substantial alpha in terms of performance or volatility compared to MSTR itself, at least under the current market conditions.","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":"analysis","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":1,"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/2485203277"}