Assessing the High-Yield, High-Risk Potential of GraniteShares YieldBOOST TSLA ETF (TSYY)

The GraniteShares YieldBOOST TSLA ETF (TSYY) has emerged as a tantalizing option for income-seeking investors, boasting a staggering 139.98% distribution yield as of August 1, 2025. This figure, however, masks a complex and precarious strategy that balances income generation with structural vulnerabilities. By leveraging a dual options strategy—selling out-of-the-money put options on leveraged TSLA ETFs while purchasing protective puts—TSYY aims to capture premium income while hedging against extreme downside risk. But the sustainability of this approach, and the legitimacy of its eye-catching yield, demands closer scrutiny.

The Mechanics of High Yield, the Risks of Return of Capital

TSYY's weekly distributions are derived primarily from the premiums collected from its options strategy. The fund's latest payout of $0.2368 per share, with a 98.33% return-of-capital (ROC) component, raises critical questions. While ROC distributions are not taxed as income, they represent a return of the investor's original principal, eroding the fund's net asset value (NAV) over time. This creates a self-perpetuating cycle: as NAV declines, the fund must increasingly rely on ROC to maintain payouts, further devaluing its underlying assets.

This dynamic mirrors the collapse of the YieldMax™ TSLA Option Income Strategy ETF (TLSNY), which similarly relied on high ROC distributions to sustain its 105.58% trailing yield. TLSNY's strategy of selling call options on TSLA capped its upside potential while exposing it to unlimited losses if the stock fell. As Tesla's free cash flow (FCF) declined by 71% year-over-year in Q1 2025 and regulatory headwinds mounted, TLSNY's NAV plummeted, forcing ROC-heavy payouts that accelerated its erosion. By March 2025, TSYY itself had slashed its distribution by 40% and seen its NAV drop 20.89% in a single month—a cautionary echo of TLSNY's trajectory.

The Volatility Paradox: Tesla's Declining Predictability

TSYY's strategy hinges on Tesla's volatility as a source of income. Historically, TSLA's price swings between $100 and $300+ created a fertile ground for options strategies, but recent trends suggest this volatility is waning. Tesla's FCF, a key driver of stock price momentum, has deteriorated sharply, with analysts projecting a potential return to negative territory in 2025. Meanwhile, the loss of zero-emission vehicle (ZEV) credits and rising trade tariffs have introduced new uncertainties.

For TSYY, this means the premiums generated from selling put options may shrink as TSLA's price stabilizes, reducing the fund's ability to sustain its lofty yield. Furthermore, the fund's protective put options, while designed to limit losses, come at a cost—potentially offsetting the income generated from its core strategy. If Tesla's stock enters a prolonged downturn, the fund's hedging mechanisms may prove insufficient to prevent significant NAV erosion.

Structural Risks and the Path Forward

The parallels between TSYY and TLSNY are striking. Both funds rely on Tesla's volatility, both employ aggressive options strategies, and both face structural risks tied to declining NAVs and ROC-heavy distributions. Yet TSYY's use of leveraged ETFs adds another layer of complexity. Leveraged products are designed for short-term exposure and amplify both gains and losses, making them ill-suited for long-term income strategies.

For investors, the key question is whether the 139.98% yield represents a genuine income stream or a desperate bid to prop up payouts. The latter appears more likely. As Tesla's financial health weakens and market volatility normalizes, TSYY's ability to generate premium income will diminish, forcing further reliance on ROC and NAV compression. This trajectory is unsustainable and could lead to a collapse in investor confidence, akin to TLSNY's trading discounts and redemption struggles.

Investment Advice: Caution Over Greed

While the allure of a near-140% yield is undeniable, the risks embedded in TSYY's strategy far outweigh its potential rewards. Investors seeking income should consider high-quality dividend ETFs or direct equity holdings in stable, cash-flow-positive companies. For Tesla bulls, direct ownership of TSLA stock—despite its volatility—offers clearer upside potential without the derivative complexities of TSYY.

In a market increasingly wary of return-of-capital gimmicks, TSYY serves as a stark reminder that high yields are often a mirage. The fund's survival depends on Tesla's stock resuming its volatile ascent—a scenario that grows less certain with each quarter of declining FCF. For now, the best strategy may be to avoid the siren call of unrealistic yields and seek income sources that prioritize sustainability over spectacle.