GraniteShares YieldBOOST TSLA ETF: High-Yield Dividends or a Risky Gamble?

The GraniteShares YieldBOOST TSLA ETF (TSYY) has captured investor attention with its bold move to offer weekly dividends of $0.2424—a 140.46% annualized yield as of July 2025. But behind this eye-catching payout lies a complex web of risks tied to Tesla's volatile stock performance and the ETF's precarious financial engineering. Is this a golden opportunity for income seekers, or a high-stakes gamble with unsustainable returns? Let's dissect the facts.

The Mechanics of TSYY's “YieldBOOST” Strategy

TSYY generates income by selling put options on 2x leveraged Tesla ETFs (e.g., TSLL and TSLT). Here's how it works:
- Selling Puts: The ETF collects premiums from selling put options, which obligate it to buy Tesla's leveraged ETF shares at a set price (strike price) if the underlying ETF's price falls below that level.
- Risk Mitigation: To protect against extreme downside, TSYY buys put options on the same leveraged ETFs, capping its potential losses.
- Leverage Exposure: TSYY's NAV is tied to a 2x leveraged version of Tesla's stock performance, amplifying both gains and losses.

This strategy creates a high-risk, high-reward dynamic. While premiums from sold puts provide a steady income stream, the ETF's fate is inextricably linked to Tesla's stock price—and the volatility of its leveraged ETF proxies.

The Sustainability Red Flags: Tesla's Struggles

Tesla's financial health is deteriorating, with free cash flow collapsing 71% year-over-year in Q1 2025 to just $664 million. Revenue stagnation, rising capital expenditures (including $11 billion allocated to AI and factories), and regulatory headwinds (e.g., lost ZEV credits) have left the company struggling to maintain growth.

Tesla's stock has mirrored its financial woes, falling 35.83% year-to-date (YTD) through March 2025. This decline has hit TSYY hard: its NAV dropped 19.77% over three months, underperforming even its leveraged benchmark. Without Tesla's stock volatility or a sharp rebound, TSYY's ability to generate premium income—and thus sustain distributions—fades.

The Return-of-Capital Trap

TSYY's high distribution rate is unsustainable without a “death spiral” dynamic. Over 99.5% of its July 2025 payout qualifies as Return of Capital (ROC), meaning investors are receiving their own principal back rather than profit. This erodes the ETF's NAV, forcing it to increasingly rely on ROC to fund distributions.

For example, TSYY's March 2025 distribution fell 40% from February's, signaling the beginning of this erosion. If Tesla's stock continues to underperform, the fund's NAV could plummet, leaving little to distribute beyond investors' own capital.

Lessons from TLSNY's Collapse

The TLS Max TSLA Option Income Strategy ETF (TLSNY), a sister fund to TSYY, offers a cautionary tale. Its ROC-heavy distributions, reliance on Tesla's volatility, and structural leverage led to a 95%+ ROC payout in late 2024—a precursor to its eventual delisting. TSYY's current trajectory mirrors TLSNY's death spiral, with no clear path to avoid similar consequences.

Key Risks to Consider

1. Leverage Amplification: TSYY's 2x exposure to Tesla means losses are doubled. A 10% drop in Tesla's stock could erase 20% of the ETF's NAV.
2. Volatility Dependency: The fund needs Tesla's stock to swing wildly to justify premium income. A stagnant or steadily falling Tesla stock leaves TSYY starved of income.
3. Regulatory and Liquidity Risks: Options trading and leveraged ETFs are complex instruments prone to liquidity crunches, especially in stressed markets.

Investment Advice: Proceed with Extreme Caution

TSYY's weekly dividends may attract income hunters, but this ETF is a high-risk proposition with structural flaws. Here's the bottom line:
- Avoid Long-Term Holdings: TSYY is a speculative bet on Tesla's volatility, not a core income investment.
- Monitor Tesla's Financials: Declining free cash flow, stagnant deliveries, and margin pressures are existential threats.
- Watch for ROC Ratios: If distributions remain >90% ROC, exit immediately to avoid the death spiral.

For most investors, safer alternatives exist. Consider dividend-paying ETFs with diversified portfolios (e.g., VIG or SCHD) or bonds with stable yields. TSYY's allure lies in its headline yield, but the risks—structural, financial, and operational—far outweigh the potential rewards.

In short, TSYY's weekly dividends are a siren song. Investors would be wise to resist the temptation unless they're prepared to ride a roller coaster with no guaranteed endpoint.

Final Note: Always consult a financial advisor before making high-risk investments. Past performance does not guarantee future results.