Specialized ETF firm YieldMax is planning to launch the first yield-bearing ETF product based on MicroStrategy MSTR shares.
What Happened: Michael Saylor’s Bitcoin holding company has officially applied with the U.S. Securities and Exchange Commission to launch its Option Income Strategy ETF for release sometime in 2024. On approval, the ETF will trade under the ticker “MSTY.”
The ETF uses a “synthetic covered call” strategy, which involves a mix of buying call options and selling put options to earn revenue. These proceeds are distributed to holders of the MSTY ETF as monthly payouts.
The ETF will not own any spot holdings of MSTR shares but will generate income by trading MSTR derivatives. This implies that investors will continue to earn yields even if MSTR shares witness a significant drop. To protect investor interests, the fund limits its upside exposure to a 15% gain on the monthly call options.
Why Does It Matter: Yield-bearing ETFs are launched targeting the conservative investor who intends to earn marginally higher average returns on even volatile parts of the stock market.
With the gain limits assigned by fund managers, these ETF investments are seen as a better and more profitable way of generating passive income from big swings in stock prices. YieldMax offers 18 similar ETF products for other major tech companies like Tesla, Apple, and Nvidia.
Bloomberg analyst Eric Balchunas stated that “My lord, this thing may set world record for highest % yield ever recorded by an ETF. It's a synthetic covered call strategy that sells short term out of the money calls on $MSTR.”
Price Action: At the time of writing, MSTR shares are trading 1% higher in premarket trading. MSTR shares in the past 5-day trading has gained 13% while its year-to-date gains skyrocketed 294%. The stock has been in the news and creating optimism around its BTC holdings amid the bull run in the cryptocurrency space.
As of Nov. 30, MSTR owns 174,530 Bitcoins, acquired for around $5.28 billion at an average cost of $30,252 per Bitcoin. It has recorded a profit exceeding $2 billion from its holdings amid the rally.
Read Next: MicroStrategy Outperforms Bitcoin: Canaccord Genuity Raises Price Target During Positive Outlook
© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
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