TSLA YieldMax ETF Beats Market Decline with Attractive Yield

The YieldMax TSLA Option Income Strategy ETF (TSLY) has a high yield, despite its declining share price. The ETF's income outpaces its share price decline, making it an attractive option for investors seeking high yields. However, investors should exercise caution and consider the fund's long-term performance and risk profile before investing.

The YieldMax TSLA Option Income Strategy ETF (TSLY) has been a subject of interest among income investors despite its declining share price. TSLY, which focuses on Tesla (TSLA) by building a synthetic long position and deploying a call option strategy, has seen its share price fall by 79.23% since its inception in November 2022 [1]. However, the ETF's income has outpaced its share price decline, making it an attractive option for investors seeking high yields.

TSLY's distribution yield has outpaced its share decline, with the ETF's distribution yield based on the trailing twelve-month (TTM) distribution reaching 124.15%. This means that investors could potentially break even on the initial investment in 11 months or less at the current share price. If TSLY can maintain its current 30-month distribution average, it would take 8 months to recover the initial investment [1].

Despite the share price decline, TSLY's monthly distribution has grown over the past 2 months by 63.86% to $0.76. This indicates that the distribution won't continuously decline as the share price has. TSLY has paid 30 distributions without missing a single month, totaling $33.17 in distributable income back to its shareholders, which is 82.29% of the initial share price [1].

Investors should exercise caution when considering TSLY. The ETF utilizes a combination of puts and calls to create a synthetic long position that tracks the movement in TSLA's share price. This strategy limits upside potential compared to owning TSLA's shares and may not generate distributions at the same level in the future. Additionally, there is a risk that shares of TSLA could drop and not recover by the time TSLY has to establish a new synthetic long position while writing new covered calls [1].

TSLY is an actively managed ETF that generates income by using a covered call spread strategy once the long synthetic exposure is established. The call options that are purchased and the puts that are sold are done so with a 1-6 month term at a share price that is close to the current share price of TSLA. This creates a synthetic long position that has full exposure to TSLA without actually owning the shares [1].

In conclusion, while TSLY's share price has declined significantly, its income has outpaced its share price decline, making it an attractive option for income investors. However, investors should consider the fund's long-term performance and risk profile before investing. The current share price positions the distribution level to recover the initial investment within a year and generate recurring income from a free asset in the future.

References:
[1] https://seekingalpha.com/article/4794469-tsly-income-outpaces-declining-share-price-with-its-big-yield