More Covered Writing ETF’s

Defiance’s MST, GLDY, QQQY, SLVY, USOY, and TLTY

We continue our series that examines some of the myriad of covered writing ETF’s that are in circulation now, and more are arriving all the time.

Here’s a brief recap of what we’ve learned so far in this series:

YieldMax has a number of ETFs, in which they are generally long synthetic stock (long call, short put with the same terms) and then they sell call credit spreads, out-of-the-money against that synthetic stock. Credit balances are invested in T-Bills (or equivalent) and dividends are paid monthly. We looked at MSTY, CONY, NVDY, and TSLY, which have as their underlyings MSTR, COIN, NVDA, and TSLA, respectively. Our conclusion was that these are attractive approaches to a taxable income stream as long as you have faith in the underlying – which is Bitcoin in the cases of MSTR and COIN.

More recently, we looked at some of the Defiance zero-day-to-expiration (0DTE) ETF’s on $SPX (SDTY), $NDX/QQQ (QDTY), and $RUT (RDTY). We were less impressed with these because instead of using synthetic stock, Defiance is paying cash for really deeply in-the-money calls to establish an equivalent stock position.

The MST ETF on MSTR:

Today, we are going to look at a new listing by Defiance – a leveraged, covered call writing strategy in MSTR. The ETF is MST. This ETF was listed on May 2nd, 2025.

Defiance states:

“MST aims to deliver approximately 150% to 200% of MicroStrategy’s daily price performance, capitalizing on its volatility and growth potential. [Also,] By utilizing a credit call spreads [sic] strategy, the ETF seeks to generate high income, which is distributed to investors every week, providing regular cash flow and a potential buffer against declines.”

So, they are leveraging the long stock and selling call credit spreads against it. Looking under the hood, we find the same problem we had with the Defiance 0DTE strategies: they are spending a lot of cash by buying deeply in-the-money calls, instead of using synthetic stock and putting the difference in (more) T-Bills.

MSTR: trading at 378
Here are the current holdings of MST:

• Long a swap for approx. 161,000 shares of MSTR ($61 million)

• Long 1565 MSTR June (6th) 25 calls (yes, 25 is the strike – not a typo)

• Long 850 MSTR June (6th) 27.5 calls

• Short 2014 MSTR call credit spreads:
  1837 June (6th) 382.5 – 405
  177 June (13th) 395 – 445

• Long $32.6 million T-Bills or equivalent

MST (the ETF) is trading at 17.30, and it has paid a dividend each week so far (three weeks total) of $0.8664 total. The first one was larger than the last two, which have been around 26 cents each week. If one makes the (rather unjustified) assumption that MST is going to pay .25 per week, that would be 13.00 per year, and would almost cover the cost of the stock in just about 18 months.

It’s never clear with these ETF’s just how much the dividend payout is, or where it comes from (credit spreads or stock gains), but MSTR is about unchanged over the course of the first three weeks. Clearly, with the underlying for MST being roughly 2x MSTR, that dividend isn’t going to hold up if MSTR declines, but it could increase if MSTR rises.

As of this writing, there are no listed options on MST. But there are listed options on MSTY, so they will probably be coming soon for MST.

In my opinion this MST ETF is inferior to MSTY, but they are somewhat apples and oranges, for MST is 2x MSTR as the underlying and MSTY is one time.

GLDY, SLVY, USOY, TLTY

These four ETF’s are part of Defiance’s set of what they call “Enhanced Option Income ETF’s.” They have as their underlyings the very popular ETFs: GLD (Gold), SLV (Silver), USO (Oil), and TLT (T-Bonds). Very simply put, these four ETF’s are merely outright naked put selling against the same-named underlying ETF.

For example, let’s look at GLDY. Defiance defines their strategy thusly: “GLDY uses an at the money or in the money put selling strategy to provide income and exposure to the price of GLD. The Fund’s options contracts generate current income from the premiums received through the sale of such options. In addition, the Fund’s in the money put options may provide upside appreciation, also known as “intrinsic value.”

At least once a week, the Fund will sell put options that are priced either at the money or up to five percent in the money. If the Fund sells an option that’s priced above the current market price, the Fund may profit if GLD’s share price increases above its current price, stays flat, or decreases slightly (i.e., the decrease to the Fund is less than the original extrinsic premium received).”

So, the only question is how far in- or out-of-the-money are the written puts? Since the ETF portfolio holdings are readily available from the Defiance website, this is what GLDY looks like currently:

With GLD currently trading at 311 (the close on 6/5/25), the holdings are:

• Long $1.4 million T-Bills or equivalent

• Short 44 GLD June (6th) 312.5 puts

The notional value of those puts is 44 x 100 x 312.5 = $1.375 million

Very simply, all the cash has been put to work selling at-the-money puts at this time. Here, the collateral earns money as well. They don’t specify whether or not they will use leverage on the collateral. For example, if portfolio margin were being used, the number of puts could be increased substantially. However, I don’t think that is what Defiance wants for this strategy: it’s just plain and simple a put writing strategy on GLD.

GLDY was launched on April 2nd, 2025. It pays a dividend monthly, if possible. So far it’s paid $0.6066 in April and $1.0544 in May. GLDY closed at 18.60 on June 4th, so that’s a very healthy dividend so far. Of course, if GLD drops in value, then the dividend for that month might be in jeopardy. So it’s pretty difficult to project exactly what the dividends will be going forward.

Regardless, if you want an income stream with some modest exposure to Gold (the delta of the puts, essentially), then this could be an attractive ETF for you.

As of this writing, SLVY and TLTY have not yet been issued. USOY is similar to GLDY, except that puts are written on the Crude Oil ETF (USO).

The “Grandfather”: QQQY

But these new ones are all taken from the original “Enhanced Option ETF” issued by Defiance – QQQY. That uses the same strategy, but is writing puts on the NASDAQ-100 Index ($NDX), even though they use the symbol QQQ ETF. It was first listed on Sept 14, 2023. It has paid a tremendously large amount of dividends – so much, in fact, that investors have generally recouped the full value that they paid for QQQY in a little over a year.

At first, QQQY paid dividends monthly, but then it began to pay them weekly beginning in October 2024, and as far as I can tell, it has paid dividends every week since then. The table below shows an excerpt from the total dividend payout table. But look at the far right-hand column. That’s the annual yield – i.e, the amount of the current stock price that was paid in dividends over the past year.

Those numbers are astounding, and it would make one think that puts on QQQ are tremendously overpriced. But what has really happened, is that Defiance seems to me to be paying out too much in dividends.

Below is the current chart of QQQY, dating back to inception. I’m not sure that’s the performance that investors were looking for when they bought QQQY. It seems that you’ve swapped long-term capital losses for current income (taxable dividends).

The prospectus for QQQY ordinally stated “The Fund’s primary investment objective is to seek current income. The Fund’s secondary investment objective is to seek exposure to the performance of the Nasdaq 100 Index (the “Index”) subject to a limit on potential investment gains.” That is, a put sale has limited upside profit potential. But then the prospectus was modified last month to eliminate the clause “subject to a limit on potential investment gains.” That modification became effective May 27, 2025 – i.e., about a week ago.

So far, the portfolio merely has short $NDX puts in it (why not QQQ, which are far more liquid?). The QQQY portfolio is short $NDX (Jun 6th) 21780 puts, with the Index having closed at 21721 on June 4th. So, these are roughly at-the-money puts.

I don’t know what this change of prospectus will mean, but it sounds to me like they want to take some of the put premium and buy out-of-the-money calls. That would help the upside and would be in line with the clause that was removed from the secondary investment objective.

Below is the chart of QQQ over the last two years. Notice that QQQY was little affected by the huge drop in QQQ in April of this year. That was some adept footwork in the choice of which put strike to write by the Defiance fund managers, I would think – because the dividend was up a little and was steady, but we know the underlying was taking some punishment.

I think it’s worth keeping an eye on this one to see how the “new” investment strategy unfolds. Defiance offers similar “Enhanced Option Income” ETFS in IWMY as well.

When we next visit this subject, we’ll look at some more of these dividend-related ETFs, where PLTY, QQQT, and others are candidates for analysis.