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FameEX Hot Topics | Investment Company Launches Dividend-Paying ETF Linked to MicroStrategy Stock

2023-12-08 17:46:50

YieldMax, an investment firm specializing in exchange-traded funds (ETFs), has submitted an application to the United States Securities and Exchange Commission (SEC) to launch the first yield-bearing ETF product based on shares of MicroStrategy, a company known for holding significant amounts of Bitcoin.


The ETF, called the Option Income Strategy ETF, is set to be released sometime in 2024 if it receives SEC approval. It will trade under the ticker "MSTY," which is very similar to MicroStrategy's existing ticker "MSTR." YieldMax's ETF employs a "synthetic covered call" strategy, a combination of buying call options and selling put options to generate revenue. The generated income will be distributed as monthly payouts to MSTY ETF holders.


Importantly, this ETF will not directly own any MicroStrategy shares. Instead, it generates income exclusively through trading MSTR derivatives. To minimize potential losses, the fund limits its exposure to a 15% gain on the call options each month. One notable feature is that the monthly yields of the ETF are not directly tied to the performance of MicroStrategy shares. This means that investors can earn yields from the ETF even if MicroStrategy stocks experience significant declines.


Some observers on X (formerly Twitter) have raised questions about why investors would choose an ETF like this instead of directly buying MicroStrategy stock or its options. Yield-bearing ETFs are typically marketed to conservative investors who are looking to earn slightly above-average returns in the most volatile segments of the stock market. Due to the gain limits imposed by fund managers, these ETFs are considered a cautious yet potentially more profitable way to generate passive income from significant stock price fluctuations.


YieldMax already offers 18 similar ETF products linked to other major tech companies, including Tesla, Apple, and Nvidia. In 2023, MicroStrategy shareholders have seen substantial gains, with the company's stock price growing by more than 290% since the beginning of the year, according to TradingView data.


On November 30, MicroStrategy co-founder Michael Saylor announced the acquisition of an additional 16,130 BTC for approximately $593.3 million, with an average price of $36,785 per Bitcoin. As of November 29, MicroStrategy holds approximately 174,530 BTC, valued at around $7.6 billion. The MSTY ETF could provide investors with an alternative way to benefit from MicroStrategy's performance and the price movements of Bitcoin.


Disclaimer: The information provided in this section is for informational purposes only, doesn't represent any investment advice or FameEX's official view.

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