Summary MSTY, the Yieldmax MSTR Option Income Strategy ETF, is an inefficient fund that we expect will decay over time, making it unsuitable for those seeking income or price appreciation. While MSTY sports a high yield, the leveraged Bitcoin exposure provided by MSTR seems uniquely unsuited to a call-selling strategy. This could lead to massive opportunity costs for investors over the long term. As a result, we rate MSTY a 'Sell'. Over the last year or so, we've written a number of negative articles on the Yieldmax ETFs, including the following pieces on NVDY , CONY , and TSLY - the company's respective funds that sell calls on Nvidia ( NVDY ), Coinbase ( COIN ), and Tesla ((TSLY)): TSLY: Good In Theory, Disastrous In Practice CONY: Don't Buy This Yield Trap NVDY: Steer Clear Of This Yield Trap In each of these articles, we focused on how Yieldmax's aggressive call selling and payout structures would likely lead to long-term NAV erosion, which we've since seen in each underlying fund: TradingView While some may argue that these funds require dividend re-investment to 'sustain' the principal and build out a yield 'after that', we'd counter with the idea that these funds' single-stock risk, inflexible call selling regime and full premium payout will likely lead to long-term decay and underperformance for shareholders. In this article, we're going to be taking a look at MSTY , the Yieldmax MSTR Option Income Strategy ETF . While we could write an article about how we think that the fund is an inefficient, risky wrapper for a highly volatile asset, we'd rather look at it through the lens of opportunity cost. That is, how much you're actually giving up by holding it over the long run. Some may trumpet this fund's strong 'bitcoin backed' asset base and high yield, but as we see it, MSTY couldn't have picked a worse underlying asset to sell calls on, even if you have no interest in the Strategy ( MSTR ), or are only interested in the yield. Today , we'll break down MSTY's construction, dive into the fund's performance, and explain why we think the ETF is a uniquely bad fund concept, even after accounting for the incredibly high-income potential. Sound good? Let's dive in. MSTY's Construction Let's start off by taking a look at how MSTY is constructed because that's crucial to understanding why we don't like the fund. First up - what actually happens with your money under the hood when you invest into MSTY? In short , MSTY takes your cash and does a couple of different things. First, the ETF takes investor capital and buys US Treasuries, which it then uses to collateralize a longer dated synthetic option position in MSTR: IR By being long calls and short puts, the theta cancels out for the most part, and MSTY gets a similar type of 'long' price exposure as if it just bought MSTR alone. This whole song and dance exists for two reasons: better cash management, and the fact that regulations prohibit a singular stock from being the main holding of a fund. From here, MSTY - on an ongoing basis - sells short-dated calls and call spreads to generate income. These trade structures crystalize potential upside into a current cash payout , which is the whole idea of the fund. Again, this is the core idea; trade potential capital appreciation in MSTR that could occur above a certain point into real cash income. For some stocks, this seems like a sensible tradeoff. We've written countless articles on the benefits of selling puts and calls on stocks with a high level of stability and a medium / medium-low return profile. But even though the call premiums for MSTR - which is one of the most volatile stocks around - compensate for this risk to some degree, we'd argue that Bitcoin's ( BTC-USD ) underlying price action doesn't lend itself well to this strategy. Here's why. In short, you can think of MSTR as one giant, leveraged currency bet, built up on strong historical performance and zero-cost debt : Assume that you could go back to 2013, and that you had $100,000 in your bank account in that year. What would you do with it? If you were smart, you'd invest it into Bitcoin, which was trading around $100 bucks per coin. This gets you out of a 'losing' currency and into a 'winning' currency. Monetarily, a $100k purchase in 2013 gets you 1,000 Bitcoins. In today's day and age, that would be worth roughly $85 million. Inflation adjusted, that's still $63 million in 2013 dollars. Not bad. If you held the cash in your account and didn't touch it, then you'd be down more than 37% in terms of buying power for key U.S. goods and services, as measured by the CPI. The lesson here is simple - USDs tend to lose value over time, and with a fixed supply and increasing utility, Bitcoins - so far - have mostly gained value over time. But what if you wanted to make the most amount of money that you could? If you were placed back in 2013, then you'd actually borrow as much USD as you could get your hands on to buy Bitcoin. The borrowed funds would cost you less to pay back in the future, and those funds would also grow into a much larger balance over time, a winning pair trade combo. This is ... exactly what Saylor has done with MSTR's treasury. Thus, when viewed in aggregate, MSTR's balance sheet includes $31 billion in Bitcoin 'equity' , alongside a leverage, add on of ~$9 billion in convertible debt, which has gone straight towards buying an extra ~$9 billion in BTC exposure. Downstream, this means that MSTY is ultimately selling calls on a leveraged derivative of the following price chart, which trends very strongly in both bull and bear markets : TradingView As a result, our belief is simple - that MSTY will materially underperform MSTR over time, given that selling calls at highs provides minimal protection , and selling calls at lows provides serious capital impairment . Why sell off your potential upside in this leveraged BTC trade for pennies on the dollar? MSTY's Performance If you actually look at the fund's performance, this is exactly what has been happening. First, let's look at the performance gap just by looking at price return: TradingView Since inception, MSTY has decreased in price by roughly 13.22%, while MSTR has increased in price by more than 230%. So much for MSTY keeping some 'capital appreciation' elements within the broader total return package. Either way, once you add back in dividends, MSTY underperformed MSTR by more than 90% over the last year alone: TradingView While these charts are much closer in performance, there are some key gaps to know about. As we mentioned, MSTR should trend strongly in the future based on BTC's strong history of volatility. Of course, past performance is no guarantee of future results, but we'd argue that BTC has retained significant volatility even as its market cap has grown considerably, which in our mind solidifies a higher-for-longer outlook for BTC vol. When trending strongly, MSTY's short option positions don't do it any favors. In September through November 2024, we saw a huge gap in performance. MSTY produced total returns of ~170%, while MSTR popped more than ~313% from trough to peak. This is material capital impairment, especially when considering that during the recent selloff, from mid-jan through today, we've seen MSTR decrease by ~39%, while MSTY has decreased by -34%. So much for the downside protection story. In our view, as one of the trendiest stocks out there, MSTY's underlying exposure is one of the worst possible assets Yieldmax could have chosen for a call-selling fund. We're aware that the income potential is massive, especially given the incredible underlying IV, but going forward, it appears as though NAV will continue to deteriorate, which could impact long-term income potential for investors. Possible Uses So - we've made the case that MSTY is a poor choice for price appreciation, total returns, and income, depending on what you're comparing it to, and what your goals are. But how could the fund be used, if you were looking to add it to a portfolio? As we see it, there's really only one role for MSTY - as a small portion position replacement option for long-term MSTR investors who are also looking to monetize an income from the asset. If you're looking for income, and you have a position in MSTR, it might make sense to sell some of it off and replace it with MSTY in order to generate yield. Since the IVs are so high, even an 80-20 split could produce dividends in the ~30% range, while retaining a good chunk of the potential upside you get with an MSTR position. Summary Other than that, though, we'd argue that MSTY is a poor option for Bitcoin believers, long-term income investors, and everyone in-between. Thus, our ' Sell ' rating. Stay safe out there!
