GraniteShares YieldBOOST SPY ETF: Redefining Passive Income in a Low-Yield World

In a market where traditional dividend yields are shrinking and fixed-income returns remain lackluster, investors are increasingly turning to innovative strategies to generate passive income. GraniteShares' YieldBOOST SPY ETF (YSPY) has emerged as a standout in this space, blending options-based income generation with leveraged exposure to the S&P 500. This actively managed ETF, launched in early 2025, challenges conventional yield strategies by leveraging derivatives and risk management tools to deliver a novel approach to income generation. But does its structure hold the key to redefining passive income in a low-yield environment?

The YSPY Strategy: Leverage and Options for Yield

YSPY's core innovation lies in its dual approach: selling put options on leveraged S&P 500 ETFs (such as Direxion's 3X S&P 500 ETF, SPXL) to generate premiums while purchasing put options to hedge against downside risk. This combination aims to create a “yield-enhancing” structure that capitalizes on market volatility. By leveraging 3x exposure, the fund amplifies its ability to collect premiums, which are then distributed to investors on a weekly basis.

The strategy's mechanics are straightforward yet complex. When the S&P 500 remains relatively stable or rises, the sold put options expire worthless, and the fund retains the premiums. If the index experiences a sharp decline, the purchased put options act as a buffer, limiting losses. This duality positions YSPY as a hybrid between a covered call strategy and a volatility-hedging tool, offering both income generation and risk mitigation.

Comparing YSPY to Traditional Dividend ETFs

Traditional dividend ETFs, such as SCHD and VYM, rely on dividend-paying equities and passive indexing to deliver income. These funds prioritize quality—selecting companies with long dividend histories and strong balance sheets—to minimize the risk of cuts. While their yields (typically 2–3.5%) are modest, their stability and diversification make them attractive to conservative investors.

YSPY, however, operates in a different risk-return universe. Its 30-Day SEC Yield of 0.91% may appear low, but its weekly distributions and potential for higher income in volatile markets could outperform traditional ETFs. For instance, in the first half of 2025, YSPY's market price returned 7.45% in a one-month period, outpacing the S&P 500's 5.14% gain. This performance, while short-term, underscores the fund's ability to capitalize on market dynamics that traditional dividend ETFs cannot.

Yet, YSPY's structure is not without trade-offs. Its 1.07% total expense ratio is significantly higher than most passive dividend ETFs, and its reliance on leverage and options exposes it to higher volatility. In a prolonged market downturn, the fund's hedging strategy may not fully offset losses, and its income could shrink if volatility declines.

The Low-Yield Environment and ETF Innovation

The broader market context in 2025 is one of “higher-for-longer” interest rates, which have suppressed yields in both equities and fixed income. In this environment, investors are increasingly adopting derivative-based strategies to enhance returns. Covered call ETFs like the NEOS S&P 500 High Income ETF (SPYI) and JPMorgan's Equity Premium Income ETF (JEPI) have seen explosive growth, with assets surpassing $170 billion. These funds, like YSPY, use options to generate income but lack the hedging component that distinguishes YSPY's approach.

YSPY's innovation lies in its attempt to balance yield generation with downside protection—a feature rarely found in traditional dividend ETFs. While its performance is untested over a full market cycle (it was launched in early 2025), its structure aligns with the growing demand for income strategies that adapt to market conditions.

Risks and Considerations

Investors considering YSPY should weigh its risks carefully. The fund's leverage and options strategies amplify both gains and losses, making it unsuitable for risk-averse portfolios. Additionally, its weekly distributions, while attractive, are not guaranteed and depend on market volatility. In a low-volatility environment, the premiums collected from selling puts may shrink, reducing the fund's yield.

Moreover, YSPY's active management introduces execution risk. The fund's ability to consistently identify profitable options trades and hedge effectively will determine its long-term success. In contrast, passive dividend ETFs offer predictable, if lower, returns with less complexity.

A New Paradigm for Passive Income?

GraniteShares YieldBOOST SPY ETF represents a bold reimagining of passive income strategies in a low-yield world. By combining leverage, options, and hedging, it offers a unique value proposition: the potential for higher yields in volatile markets without sacrificing downside protection. While its structure is more complex and costly than traditional dividend ETFs, it caters to investors seeking to adapt to a shifting economic landscape.

For those willing to accept the risks, YSPY could serve as a complementary tool in a diversified portfolio. However, it should not be viewed as a replacement for traditional income strategies but rather as a specialized vehicle for specific market conditions. As the ETF space continues to evolve, YSPY's success will hinge on its ability to deliver consistent performance and navigate the inherent challenges of its innovative approach.

Investment Advice

Investors seeking income in 2025 should consider a mix of traditional dividend ETFs and innovative options-based strategies like YSPY. For conservative portfolios, funds like SCHD or VYM provide reliable, low-cost income. For those with higher risk tolerance and a focus on volatility-driven markets, YSPY offers a compelling, albeit more complex, alternative.

However, due diligence is critical. Prospective investors should analyze YSPY's performance in different market scenarios, assess their risk appetite, and ensure the fund aligns with their long-term goals. In a world where traditional yields struggle to keep pace with inflation, YSPY's approach may well redefine what it means to generate passive income—but only for those prepared to navigate its unique risks.