MSTY: Why I Sold, When I'd Buy Again

Summary I sold my MSTY position due to NAV erosion, falling distributions, and better income opportunities elsewhere, despite still being in the green overall. MSTY is best viewed as a pure income play, not for capital appreciation; upside is capped, and NAV erosion is a persistent risk. Future re-entry depends on share price stabilization and signs of rising distributions, ideally after a further drop and MSTR price rebound. Long-term holders can break even or profit via distributions, especially if they allocate income wisely into other high-yield or growth assets. YieldMax MSTR Option Income Strategy ETF ( MSTY ) is an ETF that uses synthetic covered calls on the underlying stock Strategy ( MSTR ), meaning it doesn't directly hold any of Strategy's stock. Its primary purpose is to generate income for investors. Some of the potential downsides to the holding are NAV erosion and the capping of the upside in contrast to the probability of significant upside over the long term for Strategy. In this article we'll look at why I sold my entire position in MSTY and what I am looking for if I decide to take a new position in the future. We'll also look at how long-term holders could look at whether or not to continue to hold in light of significant NAV erosion. Why I sold I initially took a small position in MSTY on February 10, 2025, and gradually engaged in dollar-cost averaging until the total number of shares reached my goal. When the share price started dropping quickly, I sold a small amount of shares to mitigate the NAV erosion. The reason I didn't sell more was because I thought we might be close to a bottom and held onto the bulk of them to see if I was correct. While I ended up selling the remaining shares because of no signs of upward momentum, it remains to be seen if I made the right decision in regard to being close to a bottom. That said, even if the share price recovers some, I won't regret selling them off. The reason why is I was still in the green even after the plunge in NAV because of the distributions paid out and total return, so I didn't want to wait until I was in the red, which would have forced a decision for me to hold onto the shares until they returned to the green. Since the distributions have been falling along with the share price, I didn't want to commit to that potential length of time. Also, note on the chart below that in early April the share price of MSTY didn't move up in conjunction with MSTR as it had in the past; instead, it widened, which suggested to me the market thinks MSTR is going to continue to fall. Seeking Alpha I sold my position primarily because I saw better opportunities to invest in relationship to income-producing ETFs, not because I thought I wouldn't recoup my capital or be, over time, significantly in the green in regard to total returns. The other reason is I think MSTY could fall further, and if it does while MSTR starts to climb in price, I see distributions rising to nice levels once again, even if NAV remains subdued. The scenario I would take another position Taking into account total returns, I made a nice amount of money with MSTY, even after the recent drop in share price. After selling, I thought about whether or not I would take another position in MSTY in the future, and after thinking about it, I would do so without hesitation under the right circumstances. I understand it's difficult to think in terms of finding a bottom with a covered call ETF, but I think we can come close. Because the fund is built for high distributions, I don't think in terms of whether or not the NAV holds, only that it doesn't totally erode at a pace that makes it difficult for distributions to offset that erosion. What I appreciate about MSTY is that even after erosion, I still made some nice gains and believe I can repeat that in the future. With that in mind, what I'm looking for now is for the share price to, in general, stabilize some. There is no doubt in my mind that MSTR is going to resume its upward trajectory in the months and years ahead, based upon my belief that bitcoin is going to continue to increase in price for many years ahead. That means that eventually the distributions of MSTY are going to increase along with that upward price movement. That's true even if the share price doesn't enjoy the same upside as the underlying stock. This is why I'm looking for a lower price point. That not only protects my downside and NAV erosion but also offers an opportunity for distributions to easily overcome whatever erosion comes after taking a new position. I'm not necessarily looking for a specific price point for an entry, but rather a pattern that points to a resumption of and increase in distributions. Why this is important is if the share price of MSTY becomes very cheap, and at that time MSTR starts to sustainably rebound in price, the distributions are going to be disproportionate to the share price and probably generate stronger income than in the past when measured against the cost basis. For those that got in early I know some investors got in early with MSTY and have a high-cost basis and concerning NAV erosion since then. While true, at the same time those that have been holding for a long time in relationship to the time the fund started trading have also experienced extraordinary distributions that those recently taking a position haven't. Let's now look at distributions using $43.00 per share as a starting point. I took that number from the day the share price reached its highest of $46.99 per share on March 24, 2024. The reason for doing so is that after it hit that, there was a huge, very short-term spike that produced its all-time high. The chance of most investors entering a position at that level is very small. There will be a few, but not enough to justify using the all-time high as a reference point for NAV erosion vs. distributions. Based upon the total distributions from March 24, 2024, onward to September 2025, the total number of distributions, assuming taking a position of 1,000 shares, would be $41,770. With the $43.00 per share number, a thousand shares would be $43,000 total. That means at this time, at almost the worst-case scenario for long-term holders of the ETF, they would only be approximately $1,330 from breaking even. Even if MSTY lowers its distribution to under $1.00 per share, it would take under two months to be playing with house money for as long as the ETF is held. Dividend history (Seeking Alpha) Again, that's assuming a higher entry point. On that same day, the share price dropped to under $40.00 per share, so that would give shareholders a solid cost basis. Even for the relative few that may have jumped in at a higher price point, it's easy to see they will break even in the near future. I'm bringing this up because there are many naysayers out there that long-term holders may be tempted to sell. My thought is that considerations of playing with house money for as long as the fund pays out decent distributions are a no-brainer. Let's say the distributions fall to even as low as $0.50 per share. Where else are you going to get that type of return with literally no more risk to your capital? Bear in mind I'm referring to those that got in early at a high price point. Conclusion MSTY is a pure income play. If for any reason it were to trade above cost basis, it would be either temporal or the result of getting in at a bottom. Either way, if the share price rises above the cost basis, it should be considered an anomaly that, over time, is more than likely to correct to the downside. I don't see that happening, especially as the current performance of the ETF has the share price of MSTY widening against the underlying MSTR. The only thing I see changing that over the long term is when the share price of MSTR recovers and the distribution of MSTY increases quicker than the price of MSTR. Even under those conditions, I don't see it ever recovering to the prior lag it had in the past. That doesn't mean it isn't a good vehicle to generate income, only that investors need to take the things into account mentioned above in order to mitigate NAV and enter the trade when MSTR appears ready to run again. Under that scenario, there isn't likely to be a lot of NAV recapture, but there will be a surge in distributions, which should more than offset erosion. Finally, one element not considered seriously enough is how the income is allocated once it is received. I have reinvested in other high-income ETFs, as well as more stable growth holdings that should do well for the long term. In other words, one can't simply take a high-yielding ETF alone and measure its performance. The total picture must be included, and for those that allocate income wisely, the performance is even better than the performance of the standalone ETF.