Summary Yieldmax MSTR Option Income Strategy ETF offers robust income but is highly sensitive to MSTR and Bitcoin price movements. Holding MSTY alongside WNTR, which shorts MSTR, can mitigate downside risk while maintaining strong distribution streams. Both ETFs’ performance and risk profiles are directly linked to Bitcoin’s trajectory and MSTR’s leveraged exposure. Optimal strategy involves a larger MSTY position and smaller WNTR allocation, monitoring for Bitcoin and MSTR recovery signals. Yieldmax MSTR Option Income Strategy ETF ( MSTY ) continues to be one of the most popular covered call ETFs, even though the share price has been under significant pressure as a result of the plunge in share price of Strategy ( MSTR ) in response to the correction in the price of Bitcoin ( BTC-USD ). It has $1.47 billion in assets under management ( AUM ) and over 1.5 million in daily trading volume as I write. While the weekly dividend or distribution has been falling lately, it still remains robust, with its last payout coming in at $0.4137. In this article, we'll look primarily at the utilization of the YieldMax MSTR Short Option Income Strategy ETF ( WNTR ) as a strategy to offset much of the downside of MSTY while waiting for the rebound in the price of Bitcoin, and by extension, the underlying MSTR. Investors can also get a strong income distribution stream while mitigating MSTY risk. Seeking Alpha First, the Underlying With an ETF that focuses on a single stock as the underlying, it means there is a lot more risk involved because how the underlying goes, so will go the ETF writing options against it. In the case of Strategy Inc., it has, of course, plummeted in value in direct correlation with the decline in the price of Bitcoin, which is considered to be a proxy of. Add to that its levered strategy to acquire Bitcoin, and it has declined a little more in contrast to Bitcoin, which of course has had a major impact on the performance of MSTY. To offset some of the risk to the price movement of Bitcoin and MSTR, YieldMax introduced WNTR, which shorts MSTR. The purpose is to hold MSTY and WNTR together in order to lower the risk profile. WNTR I mentioned above that WNTR was created for the purpose of seeking inverse exposure to the share price of MSTR. Nonetheless, YieldMax states that its primary purpose is to first generate income and secondarily, offset the share price decline of MSTR. Since YieldMax exists to generate the highest yields it can, this makes sense, but investors do think of it in terms of holding it to offset the downward share price movement of MSTR. With that in mind, the dual purpose is very effective when considering it generates a strong and consistent income stream from a high distribution yield, which hasn't fallen below $0.50 per share on a weekly basis. That is impressive, but investors do need to consider what happens with those shorting a holding like MSTR when it starts to jump upward. Shorts can make a lot of money going down but can get crushed when the stock they're shorting reverses direction, which I believe is inevitable with MSTR; it's not a matter of if in my opinion, but when it happens. I do think it's a good idea to hold both MSTY and WNTR at this time, but WNTR needs to be watched closely for signs it could quickly erode in price and distributions when MSTR starts to sustainably climb in value and its share price. MSTY MSTY did well for me when I held it. I did sell it when I was convinced the price of Bitcoin and MSTR were going to decline in a big way. That did happen, and even with the solid distributions, I am glad I made that decision. I have lost the accompanying income stream from MSTY, but as the price of MSTR stabilizes and climbs once again, I see it being, once again, a solid ETF to hold in order to generate income. Keep in mind that MSTY was created for the purpose of generating income, not for growth. I would be very happy to take a position and have it trade sideways or slightly up or down while collecting the high distributions it pays out. On the other hand, we're not sure whether or not we've hit the bottom with MSTR and Bitcoin yet, so having a position in WNTR and MSTY makes sense until confirmation of a sustainable recovery in both Bitcoin and MSTR. Once that's confirmed, MSTY should be poised to outperform current expectations. The Bitcoin Cycle There have been concerns expressed by investors in regard to the four-year Bitcoin cycle that many believe remains in place, meaning they think the price of Bitcoin has a lot farther to fall before a recovery. I don't hold that belief for two major reasons. The first one is growing demand and decreasing supply. Based upon its code, Bitcoin supply is cut in half every four years. This time around, after the halving, demand has continued to climb, leading me to the second reason: institutional interest in Bitcoin. As many readers know, the initial response of institutional investors to Bitcoin was to talk it down. With the risk associated with an increasing money supply and loss in value of the U.S. dollar, institutional investors, including some nations, have grown their exposure to Bitcoin, making acquisitions in the millions, and in some cases, billions of dollars. For those two reasons, I think the four-year Bitcoin cycle has been permanently disrupted. It's too early to know what will emerge from that change, but the most likely is the increase in the price of Bitcoin in the years ahead, albeit with ongoing volatility. Over time volatility will probably contract, but until then that should be the ongoing cost of taking any position in Bitcoin, MSTR, or MSTY. MSTY, WNTR, and NAV erosion It is highly probable that the most concerning thing associated with WNTR and MSTY, as well as most, if not all, covered call ETFs, is in relation to NAV erosion. As I've mentioned several times in my articles, a lot of people talking about this don't know what NAV erosion actually is. By definition, NAV erosion is when an ETF like MSTY, for example, pays out more than the income generated from the covered calls. NAV erosion is not when MSTY's share price drops in response to the drop in share price of MSTR. The same would be true with WNTR, although inversely. If the share price of MSTR is rising and WNTR's dropping, that is the same as the share price of MSTY falling in correlation with the share price of MSTR. Again, it doesn't mean it's NAV erosion causing it. Why is this important to understand? It has to do with the ability of the two ETFs to rebound in response to the share price movement of MSTR. If it's not NAV erosion, the share prices of MSTY and WNTR will reverse direction, as well as their distribution yields. Conclusion The performance of MSTY, WNTR, and MSTR is directly related to the price of Bitcoin. What one thinks of Bitcoin should be the deciding factor in making a decision concerning whether or not to take a position in any of them. In the case of MSTR, the strongest risk in the near term is how levered it is. If the price of Bitcoin were to remain under pressure for longer than anticipated, it could cause some problems for MSTR, which would be detrimental for MSTY, but positive for WNTR. I don't think that's going to happen for a prolonged period of time, but anything is possible. There is also the risk concerning WNTR when considering the risks associated with shorting stocks in general. If Bitcoin were to start outperforming, and its growth trajectory takes off, we could have a short squeeze with WNTR, which would probably result in it declining faster than the price of MSTY gains from the increase in the price of MSTR. Under that scenario, it would be hard to recover for WNTR, and its distributions would without a doubt take a hit. If the bottoms for Bitcoin and MSTR climb along with the ceilings, it would be difficult for holders of WNTR. While true, I do think it's worth holding both MSTY and WNTR. Under most circumstances, investors should be able to see potential for an underperformance from WNTR coming and respond accordingly. The best way to mitigate the risks there is to get in at a good price point and take a smaller position with WNTR than with MSTY. That would help MSTY mitigate some of the downside while generating income from both ETFs. It would be a win/win until the need to sell WNTR once MSTR takes off.
