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Summary I recommended YieldMax MSTR Option Income Strategy ETF for diversified income source and potential Bitcoin exposure, especially with expected tailwinds in 2025. MSTY is an actively managed option income ETF that generates monthly income by selling call options on MSTR, aiming for high yields and capped price gains. Despite Bitcoin's volatility, MSTY offers a strategic way to gain exposure while generating substantial income, making it a valuable addition to a diversified portfolio. Selling MSTY PUT is a safer income strategy, potentially generating high monthly income. Introduction When I recommended to buy YieldMax MSTR Option Income Strategy ETF ( MSTY ) about half a year ago, one of the main reasons was the diversification of income sources. However, the situation changed quickly, the incoming US administration has shown considerable interest in Bitcoin for various reasons. It is highly expected that TRUMP 2.0 could " create a friendly regulatory environment for cryptocurrencies. ", according to Reuters . I believe that Bitcoin may have a strong tailwind in 2025 and beyond. Therefore, there are now more reasons to increase MSTY's exposure in order to obtain the super income at a yield topping 130%. In this article, I will also discuss how I plan to use MSTY as seeding funding to establish cryptocurrency positions by employing option wheel and dividend reinvesting strategies. These methods will enable me to build investments focused on cryptocurrency, increase safety margin, and prepare for and prepare for the upcoming season. MSTY Option ETF Overview MSTY is an actively managed option income ETF from YieldMax. The fund strategy is actually pretty simple, as shown below from its official site, MSTY seeks to generate monthly income by selling/writing call options on MSTR. MSTY pursues a strategy that aims to harvest compelling yields, while retaining capped participation in the price gains of MSTR. The following is the current holdings in MSTY portfolio. There are many call options with different expiration dates in November. The main source of income comes from monthly covered call options highlighted in green. The covered calls are supported by the short PUT options and the long call option colored in yellow. The other options are call spreads one week (per Nov. 29) after the monthly schedule (Nov. 22). The spreads are used to earn additional premium income. I think it is very important to understand that the described option positioning can be repeated every month. As long as the options market is active and favorable for MSTY, this income mechanism is very reliable. MSTY Current Holdings - from Author compilation using YieldMax data Six months ago, when I started to cover MSTY, I indicated that " MicroStrategy's (MSTR) Bitcoin holdings are now worth $14 billion, more than half of its entire market value. " However, due to the significant rebound in Bitcoin prices during the US election, its Bitcoin holdings have now become a huge "Bitcoin cache" of $26 billion . On the other hand, as reported in the recent earnings report, the company's software business continues to be sluggish. The company does position itself as centered around a Bitcoin strategy, as shown below. MicroStrategy Perrformace under the Bitcoin Strategy - from MicroStrategy Q3 report MSTR's stock price is highly volatile and has a large trading volume in the market. All of these make MSTY option income EFT highly operable. In fact, MSTY has developed into one of the largest YieldMax ETFs in just 9 months. The following is a summary of the main market characteristics of MSTY and my brief comments. Assets ((AUM)): $1.27B. It is one of the largest YieldMax ETFs. Most of them are less than $1B. Volume (recent): 2,323,453. It is a heavily traded fund. Inception: February, 21 2024. It is a new and fast-growing ETF. Distribution Rate*: 130.57%. The dividend is paid monthly. Yield may vary due to volatility. Expense Ratio: 0.99%. 52-Week HV: 77. Volatility is one of the highest in YieldMax option ETFs. How I play MSTY for income and develop positions gradually Many people in the financial industry may view Bitcoin as the future digital gold due to its strong safe haven asset properties. The fact that the market value of Bitcoin currently exceeds one trillion US dollars makes it a very important investment asset class. The newly elected US government seems to be more friendly towards decentralized cryptocurrencies. The government's relaxation of regulation on cryptocurrencies will bring tremendous impetus to the Bitcoin market. I personally believe that Bitcoin does provide an excellent market for long-term investments. The incoming US government may help bring it closer to becoming "the 21st century digital gold". However, a major issue with playing Bitcoin is its extreme volatility, making it a high-risk asset. This volatility is reflected in Bitcoin players such as MSTR. In fact, MSTR has 52-Week HV over 102, which is obviously too high for many investors. One alternative is to buy and hold Option ETF MSTY as its volatility is much lower(52-Week HV: 76.9). Investors may still point to 76.9, which is about 3x volatility compared to some traditional income-focused asset classes holdings like REITs, BDCs etc. However, I believe that high volatility provides high income because call option premiums will be higher. This is precisely why MSTY can provide up to three digit yield. I suspect there might be some kind of optimum point between the volatility for (option) income and the stability for principal (price). A simple way to look at it is that we could literally set aside 100% cash in just one year time when invest in MSTY with such high yield. In terms of "duration risk" for the capital, this would probably be as safe as we can get on a dynamic (variable yield rate) basis. There is a well-known capped-gain effect for covered call strategy. I have discussed a few solutions to deal with it in my past write-up . My favorite strategy here is to reinvest the income back in MSTY or directly in underlying MSTR. This approach is sometime known as DRIPs (dividend reinvestment plans). Using only the dividends to increase Bitcoin exposure is a better strategy for dealing with high volatility because 1) we can build the position gradually and 2) we can stop reinvesting if the market condition is turning to "unfriendly". Keep in mind, we always have the flexibility of reinvesting the partial dividend. MSTY Option Wheel is a more attractive and safer alternative It is worth mentioning that MSTY has tradable option chains on itself. The following is a snapshot of some PUT options for December. MSTY PUT Options for December - from barchart.com Notice that the highlighted PUT on $32 strike price is worth about $4.8 by taking the Mid price. According to the most recent distribution announcement, MSTY " declares $4.421 dividend " for December. I could simply sell a $32 PUT option to get a higher cash income of $480 for the obligation of buying 100 MSTY shares at $32, if MSTY price is dropped below it on December 20. The income is about 8% higher than receiving $442 dividend on December distribution day. Keep in mind, I don't need to own 100 MSTY shares to get the income. Another key feature of this strategy is that income is safer income. I have to buy 100 shares at the current price($33.7), which is higher than $32. So there is actually a price advantage of $1.7 (5%). Considering the high volatility of MSTY prices, I am more inclined to sell put options to obtain higher returns and establish some safety cushion for the committed investment capital. Like dividend DRIP, I can use the proceeds from selling put options to invest in any cryptocurrency stock of my choice. This method is very similar to Option Wheel, except that the base wheel can be a different equity. Note that if the stock is placed on me when the MSTY price is below the target ($32 in our case study), I can choose to keep the stock and receive monthly dividends from MSTY, it is just like returning to the MSTY investment approach, discussed in the previous section; Alternatively, if the volatility remains at a high level, I can choose to sell these stocks and resume my put option selling process. Risks and Caveats The bullish Bitcoin is the key assumption of our thesis in this article. Due to the high volatility of price behavior, any deviation in this prediction may seriously affect the performance of MSTY. The sustained downward trend of MSTR may lead to poor performance of the fund for a period of time. Investors should also be fully aware of the common pitfalls of the single-underlying ETF mentioned in the MSTY website (linked earlier), including capped gains, non-diversification etc. Closing Thoughts Bitcoin and cryptocurrencies may receive certain catalysts from the new policies that the US government may introduce in 2025. Digital gold may arrive earlier than we expected. I suggest using MSTY to start building positions centered around Bitcoin. When the underlying price volatility reaches high levels, MSTY option income ETF can provide ultra-high dividend distributions with high double or even triple digits. I also suggest selling MSTY put options, if conditions permit, to obtain higher and safer income. The revenue from MSTY and PUT sales can be used to gradually establish Bitcoin positions. I intend to maintain my BUY rating on MSTY due to the promising Bitcoin outlook and various ways to earn income from playing MSTY.
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