Covered Writing ETFs: MSTY, in Particular

A deep dive into one of the newer covered call ETFs—MSTY—that's been turning heads with its sky-high payouts.

This article was originally published in The Option Strategist Newsletter on 1/17/2025.

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We have had some requests for more information on these types of ETFs, so here is the first attempt to answering those requests. In the last couple of years, several new ETFs have come to market that essentially write calls against a popular, volatile stock. The ETFs are not all constructed the same way, although there is a basic format to begin with. Sometimes, variations are made if the performance of the underlying stock is exceptional.

Many of these are issued by the company Yield Max ETFs. Their website has a plethora of information, including prospectuses (prospecti?), dividend history, holdings, etc. Their URL is:
https://www.yieldmaxetfs.com

There is a button on the main page of their website that says “Full ETF list.” You can click on that and get the information on the one you want. I have not done an exhaustive search of everything in that list, for – as you will see – it is quite long, with more that 40 such ETFs.

For the purposes of this article, we’re going to discuss the ETF that is a covered write on the stock Microstrategy (MSTR) – which is a volatile stock that basically just buys Bitcoin. The covered writing ETF is MSTY, and we have traded it several times in this newsletter. As I work my way through further research, if there is anything to report, I’ll put it in this newsletter.

Yieldmax is the creator of the ETF. The advisor and sub-advisor, who are doing the trades, are other companies. In the article below, when we say “they” it generally refers to the advisor.

Strategy

Initially, the strategy here was to sell slightly out-of-the-money options on MSTR, with expiration dates of a month or less. These are generally the options with the highest implied volatility on a volatile stock, so this part makes sense.

In addition, they do not buy the stock. Instead they use synthetic stock: