Latest news with #YieldMax
Forbes
6 days ago
- Business
- Forbes
NVDA Vs. NVDY: The Better Nvidia Stock Buy For Your Investing Style
Nvidia is the crown jewel of the AI boom. But how you choose to invest in it, either directly through NVDA stock or indirectly via the NVDY covered call income ETF, reflects your risk appetite, time horizon and definition of returns. This article explores which option (NVDA stock vs. NVDY) is a better fit for your portfolio and what your choice reveals about your investor persona. What Is YieldMax's NVDY? The YieldMax NVDA Option Income Strategy ETF (NVDY) is an actively managed fund that does not invest directly in Nvidia shares, but delivers a far higher income yield vs. NVDA. The fund's staggering trailing twelve-month (TTM) distribution yield of nearly 80% stems from a unique strategy that generates monthly income through options without actually owning NVDA stock. To achieve this, NVDY implements a 'synthetic covered call' strategy by which it To generate monthly income by selling short-term covered calls, NVDY first needs a long exposure to NVDA stock. Rather than buying NVDA shares outright, NVDY creates a cheaper, synthetic long position by This combo allows NVDY to simulate NVDA stock's price moves, without actually buying the stock. These call and put options typically have durations of one to six months and strike prices near NVDA's current price at the time these option contracts are executed. The synthetic long position provides NVDY with exposure that is nearly identical to owning NVDA stock. If NVDA rises, the call gains in value and if NVDA falls, the put incurs a loss. If NVDA stays flat, typically both options may expire worthless, and the fund may lose the cost of the call, but this will be offset by the premium received from the short put. Suppose NVDA stock is currently trading at $200/share. NVDY buys a call option with a strike price of $200 (at-the-money) by paying a premium of $15. (Premiums vary depending on volatility and expiration, and the $15 figures here are for illustrative purposes.) This gives NVDY the right to buy NVDA at $200. If NVDA rises to $250, the call option's value would increase to $50. Subtracting the $15 premium paid, the net profit on the call is $35. As part of the synthetic strategy, NVDY also sells a put option with a $200 strike price, receiving a $15 premium. This gives it the obligation to buy NVDA at $200 if the price falls below that level. If NVDA drops to $150, NVDY is forced to buy at $200, incurring a $50 loss on the put. After subtracting the $15 premium received, the net loss is $35. These call and put options together form a synthetic long position, mimicking the payoff of directly owning the stock. Although synthetic ownership is more complex than buying shares directly, it is significantly more capital-efficient. For example, buying 100 shares of NVDA at $200 each would require $20,000 upfront. A synthetic long position created by buying a call and selling a put at the same $200 strike can replicate this exposure. If the premiums for both options are around $15 each, the net upfront premium may be close to zero. Since each options contract typically represents 100 shares, this setup simulates $20,000 of stock exposure with little or no net premium paid. However, this does not mean the position is free. The short put side of the trade introduces significant downside risk and typically requires substantial margin or collateral. While the strategy uses less capital than directly purchasing the stock, margin requirements and potential losses can be huge. This is an oversimplified example meant to illustrate the concept of capital efficiency. In practice, actual capital requirements and risk exposure will vary depending on market conditions and brokerage policies. Investors don't need to worry about this nitty-gritty, NVDY fund managers will handle the complexities. NVDY then sells calls against this synthetic long position to generate income from premiums. These call options are typically short-term (expiring within one month or less) and are written at strike prices 0–15% above NVDA's current price at the time. If NVDA's price goes up, NVDY makes gains up to the strike price, but anything above that is capped, because the fund sold away that upside in exchange for income. If NVDA stays flat or dips slightly, NVDY retains the premium from selling the call options. This is its main source of monthly income. NVDY also holds short-term U.S. Treasuries that not only serve as collateral for the options in connection with its synthetic covered call strategy, but also earn some interest. NVDY also employs a 'Covered Call Spread' strategy—a more nuanced variation of the traditional covered call—used when it anticipates a sharp short-term rise in NVDA's price or when market conditions make spreads more advantageous than outright calls. In this strategy, NVDY sells a call option while simultaneously buying a call option with a higher strike price but the same expiration date. This approach still generates income and, if NVDA's price surges, allows NVDY to participate in more upside than a regular covered call would. How Does NVDY Differ From NVDA Stock? NVDA stock and NVDY are both Nvidia-focused investments but serve different goals: NVDA stock is regarded as a growth superstar, while NVDY is designed as a tactical income generator. For NVDA investors, gains and losses move in lockstep with the stock price. But, NVDY's returns, shaped by its synthetic long structure, follow a more complicated path. So, we notice that drawdowns are more or less similar for NVDA and NVDY, but gains are capped for NVDY. So, why invest in NVDY at all? Because of the outsized income yield from NVDY that far surpasses NVDA's. NVDY pays varying monthly distributions, while NVDA pays a penny in quarterly dividends. On a TTM basis, NVDY has paid distributions totaling $14.04/share, equating to 78.7% distribution yield based on NVDY's last closing price of $17.85. This far surpasses NVDA's 0.02% forward yield or annual payout of 4 cents/share on a forward basis. Price performance and Total Returns (including dividends/distributions): Even with NVDY's hefty monthly distributions, NVDA has delivered stronger total returns. NVDY's monthly payouts are a mix of return of capital (ROC) and ordinary income (such as option premiums and interest from Treasuries) For example: Why this breakdown matters: Return of capital isn't taxed when received. Instead, it reduces your cost basis in the ETF, which can increase taxable capital gains when you sell. Illustration: Once your cost basis is reduced to zero, any further ROC distributions are treated entirely as capital gains for tax purposes. The income portion of the payout, however, is taxable in the year received. For July, this would mean the remaining 63% of the distribution was taxable income. Expense Ratio: YieldMax lists NVDY's gross expense ratio as 0.99%, while many third-party sites like Yahoo Finance report the net expense ratio as 1.27%. That means an investor pays $127 annually for every $10,000 invested in NVDY. Let's say an investor bought 1,000 shares of NVDY a year ago at around $24/share: Even after accounting for the $304.80 annual fee (1.27% of $24,000), the net income is still exceptionally high. In other words, the expense ratio barely dents NVDY's income advantage. Since its inception on May 10, 2023, when it was trading around $20, NVDY has paid out $32.71 in distributions. Investors who purchased one share at launch would have recovered their full initial investment and realized an additional $12.71 in income. It is important to note that NVDY shareholders do not receive any dividends paid by Nvidia (NVDA) directly. But with these juicy payouts from NVDY, no investor would have missed much. When it comes to NVDA, the math is simple. You'll need about 10× the cost of an NVDY share to buy one share of NVDA. Sell NVDA in a taxable account, and you'll owe capital gains taxes on your profits. Sell it in a tax-advantaged account like a 401(k), and those taxes can be pushed to another day. NVDY Vs. NVDA: Advantages And Risks Lower Entry Cost: NVDY trades at roughly one-tenth the price of NVDA stock, making it more accessible for smaller investors. Capital Efficiency: Through its synthetic long position strategy, NVDY can mimic exposure to thousands of dollars' worth of NVDA stock with a minimal capital outlay. Attractive Yields - NVDY's covered call strategy generates eye-catching yields, appealing to income-focused investors. NVDA on the other hand is coveted for its growth potential rather than dividends. Faster Capital Recovery: NVDY's hefty and frequent payouts can help investors achieve 'house money' status quickly, recovering their initial investment through distributions. This can substantially de-risk the investment. NVDA requires selling shares to realize profits. Occasional Upside Participation: when NVDA stock is expected to rally in the short-term (because of a sell-off or some positive development) NVDY employs the 'Covered Call Spread' strategy, allowing more upside capture versus a standard covered call if NVDA's price surges. Asymmetric Downside: NVDY's synthetic long structure caps upside but leaves investors fully exposed to NVDA's downside. High monthly income may not be able to offset losses from a sharp NVDA correction. Investor Exodus: Significant price drops in NVDY can trigger investor outflows, lowering Assets Under Management (AUM) and making it harder to generate option income efficiently, thereby creating a negative feedback loop. Distribution volatility: While NVDA offers paltry dividends, NVDY's monthly payouts can fluctuate sharply — largely because they rely on option premium income and include return of capital. When NVDA's implied volatility drops or NVDY's Net Asset Value (NAV) erodes from repeated ROC payouts, the ETF's distributions could shrink. Opportunity Cost: Historically NVDA's returns have outpaced NVDY's significantly. Simply holding NVDA stock may generate greater total returns than NVDY, especially during strong bull runs in tech. NVDA Or NVDY — Which Investor Are You? If you are betting on Nvidia as a core pillar of an AI-driven future, and seek full participation in Nvidia's growth story — you're a Growth Chaser — you pick NVDA stock. If you are comfortable with capped upside and prioritize monthly income, you're an Income Alchemist — you choose NVDY to tactically monetize volatility and generate consistent yield. If you are looking to blend growth and income — gaining exposure to Nvidia's long-term upside while securing a steady income stream, you hold both: NVDA for capital appreciation and NVDY for monthly payouts. That makes you the Hedged Optimist. Bottom Line In my view, NVDA stock remains the superior play with its compelling long-term returns despite the meager dividend. The NVDA stock has clearly demonstrated resilience by rebounding and reaching new heights after every sharp correction, highlighting its structural strength. On the other hand, NVDY's low capital requirements, exceptional yield and the potential to recover capital in a reasonable time frame are alluring. However, the risks of asymmetric downside and NAV erosion — potentially shrinking the very dividends investors seek — make NVDY better suited as a tactical, smaller allocation in a portfolio. By contrast, NVDA stock deserves to be a core holding and investors may consider accumulating on any weakness, although past performance is no guarantee for future results.
Yahoo
10-07-2025
- Business
- Yahoo
XYZY Is an Income Juggernaut
YieldMax XYZ Option Income Strategy ETF's yield on major quote servers is listed at 92%! The ETF's website lists the yield at nearly 62%, annualizing the most recent dividend. Both numbers should cause investors to question what is going on with this highly specialized ETF. 10 stocks we like better than Tidal Trust II - YieldMax Sq Option Income Strategy ETF › The big reason why YieldMax XYZ Option Income Strategy ETF (NYSEMKT: XYZY) pops up on investor screens is almost certainly the shockingly large yield it offers. According to major online quote services, the yield is as high as 92%. YieldMax XYZ Option Income Strategy ETF's website lists the yield at a still massive 62% or so. What is the yield, and how can it be so high? There's a lot that investors need to understand before buying this aggressive exchange-traded fund (ETF). If you sum up all the dividends paid over the past 12 months, YieldMax XYZ Option Income Strategy ETF's dividend yield is likely to be close to the 92% you'll find on major online quote servers. If you take the June dividend and multiply it by 12 to figure out the forward dividend yield, the ETF's number is closer to 62%. That's what the ETF's website shows. How can those two numbers be so different? The answer goes back to what YieldMax XYZ Option Income Strategy ETF does, which is highly specific. According to the ETF's website, it is "an actively managed fund that seeks to generate monthly income by selling/writing call options on XYZ." Essentially, it is selling other investors the right to buy Block (NYSE: XYZ) stock, for which it collects a premium. The premiums the ETF collects are what are used to fund the dividend. In fact, it doesn't even own Block stock. YieldMax XYZ Option Income Strategy ETF owns cash, Treasury bonds, and calls on Block shares, which give it the right to buy the stock at a future date. It is likely to be a very complicated ETF to understand for anyone who isn't an options trader. At the end of the day, however, the ETF is all about the income it generates from its options trading around Block. The first thing an investor needs to grapple with here is the dividend. It is highly variable and depends entirely on the success of the options strategy. Over the past year, the ETF's monthly dividend has been as high as $1.67 per share and as low as $0.44. That's a pretty wide swing and means that investors can't buy this expecting a reliable income stream. It will be highly variable. The variability in the dividend will largely depend on investor trading trends around Block. If there's high demand for calls, YieldMax XYZ Option Income Strategy ETF will be able to generate more income. If demand dries up, however, it will generate less income. The dividend's size depends on investor sentiment, not on anything to do with the actual business of Block. This is not an investment in Block, which the ETF clearly states on its website. However, there's a bigger problem here. With so much cash going out the door to investors in the form of dividends, there ends up being less and less capital in the ETF itself. As the chart shows, since the ETF's inception, it has paid a large, highly volatile dividend, and the value of the ETF has trended steadily lower. For investors who are trying to live off the income they generate from their portfolios, this is not a great outcome. The thing is, even if you reinvested the dividend that YieldMax XYZ Option Income Strategy ETF has paid, the total return isn't exactly great. An investor would have been better off with an S&P 500 (SNPINDEX: ^GSPC) ETF. YieldMax XYZ Option Income Strategy ETF is not an income panacea -- it is a highly specific ETF using a fairly risky income-generating investment approach that is tied entirely to one underlying stock. To get it out of the way up front, YieldMax XYZ Option Income Strategy ETF is not meant for conservative income investors. It is for aggressive investors who want exposure to covered call writing around Block. This means it could be a good fit for an investor who owns Block but who doesn't want to sell the stock. Other investors should think very carefully before dipping their toes into this unique, highly focused ETF. Before you buy stock in Tidal Trust II - YieldMax Sq Option Income Strategy ETF, consider this: The Motley Fool Stock Advisor analyst team just identified what they believe are the for investors to buy now… and Tidal Trust II - YieldMax Sq Option Income Strategy ETF wasn't one of them. The 10 stocks that made the cut could produce monster returns in the coming years. Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you'd have $687,764!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you'd have $980,723!* Now, it's worth noting Stock Advisor's total average return is 1,048% — a market-crushing outperformance compared to 179% for the S&P 500. Don't miss out on the latest top 10 list, available when you join . See the 10 stocks » *Stock Advisor returns as of July 7, 2025 Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Block. The Motley Fool has a disclosure policy. XYZY Is an Income Juggernaut was originally published by The Motley Fool Error while retrieving data Sign in to access your portfolio Error while retrieving data Error while retrieving data Error while retrieving data Error while retrieving data
Yahoo
05-07-2025
- Business
- Yahoo
YBIT Is an Income Juggernaut
YBIT is an ETF that tries to churn out income from Bitcoin's volatility. It writes covered calls on its own "synthetic long" positions in a Bitcoin ETF. But its strategy is messy, it charges high fees, and its performance is unimpressive. 10 stocks we like better than Tidal Trust II - YieldMax Bitcoin Option Income Strategy ETF › Tidal's YieldMax Bitcoin Option Income Strategy ETF (NYSEMKT: YBIT) offers investors a unique way to generate income from Bitcoin's (CRYPTO: BTC) volatility. It does that by constantly writing covered calls on its own "synthetic long" positions in Bitcoin, and it currently pays an annual distribution rate -- or the yield an investor would receive if its most recent distribution (including option income) stays the same for the full year -- of 41.5%. That massive yield makes YBIT an income juggernaut, but is it really just a high-yield trap? Let's dig deeper and see how YBIT actually churns out its distributions. To understand why YBIT creates synthetic long positions in Bitcoin, we should discuss how covered calls work. A covered call is an option that lets an investor earn a premium by agreeing to sell an underlying security if it reaches a certain price by a certain date. If that security doesn't hit that strike price before the expiration date, the call expires, and the investor keeps the premium. If it reaches the strike price, the investor keeps the premium but must sell the underlying security. Many investors sell covered calls on their own stocks to generate extra income. More volatile investments net higher premiums, since there's a higher chance they'll hit their strike prices. That's why Bitcoin's high volatility makes it an ideal candidate for writing covered calls. However, an investor who directly holds Bitcoin in a digital wallet can't write covered calls on that position in the same way as stocks or exchange-traded funds (ETFs), because there's no way to verify and collateralize your Bitcoin holdings for the options market. Therefore, the closest alternative is to buy a Bitcoin ETF to write covered calls. Yet YBIT also doesn't directly buy Bitcoin ETFs because it would tie up a lot of its cash and isn't tax-efficient. Instead, it simultaneously buys calls and sells puts on the iShares Bitcoin Trust (NASDAQ: IBIT) to build a "synthetic long" position in the ETF with less cash. It then writes covered calls on that synthetic position in IBIT to churn out options income, which could be comparable to writing calls on the ETF, and it usually parks the rest of its cash in U.S. T-bills to earn interest and support its future options trades. Covered call strategies work best when the underlying security trades sideways, since it can generate consistent income but won't rise enough to be called away. Therefore, YBIT can keep paying out its big distributions (usually around 30%-40%) even if Bitcoin's price stalls out. Letting YBIT automate the covered calls process with its synthetic stake in IBIT is also a lot simpler, cheaper, and more tax-efficient than manually writing covered calls on Bitcoin ETFs. It also gives you some conservative exposure to Bitcoin: Even though the covered calls will limit your upside potential, its big distributions could also protect you from any steep declines. That said, YBIT's complicated strategy of writing options on top of other options could result in unstable returns in volatile markets. Most of its distributions (over 90% in 2024) also came from a return of capital (ROC) instead of its options income. Therefore, YBIT was merely returning its investors' cash as distributions while adding a single-digit percentage through its covered call options. That percentage was further reduced by its high gross expense ratio of 0.99%. That fee might be worth it if YBIT delivered impressive market-beating gains. But over the past 12 months, YBIT's shares declined 38% as Bitcoin's price rose 76%. Even with reinvested distributions, it generated a total return of 15%. That slightly beat the S&P 500's total return of 13% -- but it's unimpressive for a speculative "high-yield" ETF. YBIT might seem like an interesting way to churn out some extra income from Bitcoin's volatile swings, but it's not a great investment. If you want some exposure to Bitcoin, it's smarter to simply buy the cryptocurrency or a spot price ETF. If you want some extra income, it might be smarter to invest in a traditional dividend-oriented ETF instead of one that charges high fees, uses complicated options strategies, and funds most of its distributions with its investors' own cash. Before you buy stock in Tidal Trust II - YieldMax Bitcoin Option Income Strategy ETF, consider this: The Motley Fool Stock Advisor analyst team just identified what they believe are the for investors to buy now… and Tidal Trust II - YieldMax Bitcoin Option Income Strategy ETF wasn't one of them. The 10 stocks that made the cut could produce monster returns in the coming years. Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you'd have $699,558!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you'd have $976,677!* Now, it's worth noting Stock Advisor's total average return is 1,060% — a market-crushing outperformance compared to 180% for the S&P 500. Don't miss out on the latest top 10 list, available when you join . See the 10 stocks » *Stock Advisor returns as of June 30, 2025 Leo Sun has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bitcoin. The Motley Fool has a disclosure policy. YBIT Is an Income Juggernaut was originally published by The Motley Fool Sign in to access your portfolio
Globe and Mail
04-07-2025
- Business
- Globe and Mail
AIYY Is an Income ETF Monster
Key Points AIYY pays a distribution yield of more than 100%. But it's mainly returning its investors' cash through those distributions. It's tethered to which has been highly volatile over the past year. Over the past three years, Tidal Financial Group released several high-yield exchange-traded funds (ETFs) with jaw-dropping yields. One of the highest-yielding ones was the YieldMax AI Option Income Strategy ETF (NYSEMKT: AIYY), which was launched in November 2023 and currently pays a distribution rate of 100.8%. Many might scoff at any income investment that pays a monstrous 100% yield, but is it really a high-yield trap? How does this ETF pay a distribution rate of more than 100%? To understand how an ETF like the YieldMax fund works, we should discuss covered call options. In a covered call, you sell a call on a stock you own by choosing an option with a strike price that's higher than the current share price and an expiration date in the future. The buyer pays you a premium for the call, and the value of that option varies according to the stock's volatility and its proximity to the expiration date. Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. Continue » If that stock is still trading below the covered call's strike price at its expiration date, you'll keep your shares and the premium, and the buyer will leave empty-handed. But if the stock has climbed above the strike price, you'll keep the premium but end up selling your shares at that strike price. Many investors write covered calls on their own stocks to generate passive income. That strategy works well when the market trades sideways, but it can backfire during big rallies. To offer investors an alternative to handling the covered call strategy manually, Tidal launched covered-call ETFs, which are pinned to volatile stocks that pay out high premiums that support its distributions. Why is the YieldMax ETF messier and riskier than simple covered calls? The YieldMax fund mainly sells short-term calls (with strike prices 5% to 15% higher than the current stock price) each month to boost its distributions, while parking some of its excess cash in short-term Treasuries to earn interest. This particular ETF's underlying stock is (NYSE: AI), the divisive enterprise artificial-intelligence AI software maker that still trades more than 40% below its initial public offering (IPO) price. But unlike a regular investor, who writes covered calls to generate passive income, the ETF doesn't actually own any shares of Instead, the fund writes covered calls on a "synthetic" long position comprised of longer-dated call and put options instead of owning the stock. That approach requires less capital, since it doesn't need to buy 100 shares of for each covered call. If shares decline, the ETF's synthetic position is designed to match those declines. However, that requires perfect hedging, which can be challenging. Long-dated options used in synthetic positions also decay over time, and the fund needs to keep rolling those positions forward to keep up with shares. The ETF will underperform over the long run trades far below its IPO price, but its revenue growth accelerated again in fiscal 2024 and fiscal 2025 (which ended this April). And it recently extended its crucial deal with Baker Hughes, which accounts for over 30% of its revenue, for another three years. Those catalysts -- along with its fresh federal contracts, cloud partnerships, and generative AI tools -- could drive the stock higher over the next few years. But even if that happens, the YieldMax ETF will underperform stock as its covered call strategy limits its gains. Ideally, it can narrow that gap with its big distributions -- but the messy way it uses synthetic long positions could cause it to lag behind stock. To make matters worse, investors need to pay an annual expense ratio of 1.67% to execute the fund's convoluted strategy, which is much more expensive and confusing than simply buying shares and manually writing covered calls. That's a big part of why the ETF's shares declined 64% over the past 12 months as stock only fell 14%. Even if you had reinvested the fund's big distributions, you would have still ended up with a negative total return of 24%. Investors are mainly getting back their own money Lastly, most of the ETF's distributions are a return of capital (ROC), which means it's mainly returning its investors' cash instead of generating any fresh income. That strategy is constantly eroding its net asset value (NAV) -- which has already dropped 64% over the past 12 months -- and will further limit its upside potential. That's why that 100.8% distribution yield doesn't mean you'll magically double your investment by buying its shares and waiting for the next distributions. That ratio simply means that if its most recent monthly distribution were paid out every month for a year, its total annualized payout would be equivalent to 100.8% of the ETF's current price. But that ratio looks backward instead of forward, and its monthly payouts could decline sharply if volatility declines or its stock crashes. Investors should avoid this "income monster" The YieldMax AI Option Income Strategy ETF might seem like an income-generating monster, but it's a dangerous investment. You're mainly getting back your own money, you're being charged for it, and the ETF will still underperform stock if it rallies -- yet experience steeper declines if it pulls back. Investors should avoid it and stick with more-reliable dividend stocks instead. Should you invest $1,000 in Tidal Trust II - YieldMax Ai Option Income Strategy ETF right now? Before you buy stock in Tidal Trust II - YieldMax Ai Option Income Strategy ETF, consider this: The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Tidal Trust II - YieldMax Ai Option Income Strategy ETF wasn't one of them. The 10 stocks that made the cut could produce monster returns in the coming years. Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you'd have $699,558!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you'd have $976,677!* Now, it's worth noting Stock Advisor 's total average return is1,060% — a market-crushing outperformance compared to180%for the S&P 500. Don't miss out on the latest top 10 list, available when you join Stock Advisor. See the 10 stocks » *Stock Advisor returns as of June 30, 2025
Yahoo
04-07-2025
- Business
- Yahoo
SMCY Is an Income Hack on Supermicro
Option-writing and selling covered calls is a low-risk way of cash-monetizing existing positions in individual stocks. The strategy, however, comes with downsides, like limiting your net-upside potential. Cash-hungry growth investors looking for new picks for a tax-deferring retirement account may want to consider this ETF despite its relatively high expense ratio. 10 stocks we like better than Tidal Trust II - YieldMax Smci Option Income Strategy ETF › Are you an income-seeking investor who also wants -- or needs -- growth? That's a bit of a pickle. After all, the more you have of one, the less you typically have of the other. There are some picks that let you have your proverbial cake and eat it too, however. While they're not a great fit for everyone's portfolio, option-writing-focused exchange-traded funds (ETFs) can provide ongoing dividend income in addition to offering you most of the benefits of owning stocks. There's even a handful of single-stock-focused option-writing ETFs. One of these ETFs worth a closer look right now is the YieldMax SMCI Option Income Strategy ETF (NYSEMKT: SMCY), which turns something like a position in Super Micro Computer (NASDAQ: SMCI) into an income-generating holding. Here's the deal. Don't sweat it if you're not familiar with options; plenty of veteran investors aren't. The kinds of stock options that are bought and sold via an exchange just aren't something most people need to bother delving into. Still, there's nothing wrong with understanding them. You absolutely should understand options if you're going to consider any such income-producing exchange-traded funds -- even if you're never going to directly trade options for yourself. In the most basic sense, an option is a bet that a particular stock or index will make a particular move within a predetermined period of time. Call options are bullish bets. Put options are bearish bets. Like any other bet, you pay to make these wagers. Options are also legitimate securities, though, not only trading as such but priced in the familiar bid/ask auction format that allows their price to constantly change. A call option gains in value when the price of the underlying stock or index does, while a put option gains value when the underlying stock or index falls. Conversely, call options lose value when the stock or index in question falls, while put options lose ground when the index or stock at its basis gains in value. Here's the fun part for income-seeking investors: You don't just have to buy options and then hope to sell them for a profit in the future. You can sell options first, pocket the proceeds, and then aim to cover these trades in the future by buying them back at a lower price. Or, better still, just let those options expire altogether, essentially exiting the trade at no cost. That's option writing. There's risk, of course. The chief risk is just that you're forced to buy (or "cover") these option trades at a price above your initial sale price, locking in losses. Or, in the case of the covered call strategy that YieldMax is using with its ETFs, you could be forced to hand over shares of the underlying stock that are essentially serving as collateral for your option trade. In most cases, you'd be doing so while the stock in question is rallying, meaning you're missing out on much of that ticker's upside. This is why option selling can be such a tricky business. (If you still don't fully understand the idea, it might be worth rereading the section you just completed before proceeding to the next one.) Enter the YieldMax SMCI Option Income Strategy ETF. Just as the name implies, the fund managers of the YieldMax SMCI Option Income Strategy ETF regularly sell call options against shares of Super Micro Computer that the fund already holds. This generates ongoing income, most of which is distributed to the fund's owners each and every month. However, in that the fund also owns a bunch of Super Micro Computer shares, holding this fund is somewhat akin to holding a stake in the stock itself. That's why the two investments generally move in the same direction, even if they don't move to the same degree. It usually works well enough. Although SMCY's net asset value (or market price) has unsurprisingly trailed the performance of SMCI since the fund launched in September of last year, it's also dished out $20.20 worth of per-share dividends -- or distributions -- during this time. That's about twice the ETF's current market price, almost keeping its total net return even with Super Micro Computer shares' performance during this stretch. It just delivered about half of this performance in the form of dividend income instead of capital gains. Indeed, SMCY's trailing-12-month dividend yield stands at just over 100%. It seems almost too good to be true. You're getting the bulk of the net benefit of owning a great growth stock, but you're getting a big chunk of this benefit in the form of cash. In many ways, it is a great alternative to outright owning a stake in SMCI -- particularly for investors who like to constantly accumulate cash to fund new growth investments. There are downsides and risks worth considering, though. Chief among these risks is the underlying strategy of selling or writing options itself. Although the ETF's managers do a great job of balancing the inherent risk and reward of options trading, there are some risks that simply can't be managed away. In this case, the big risk is just that SMCI shares unexpectedly soar, and the fund is forced to hand over shares of Super Micro Computer in the midst of a rally. That, or the fund is forced to cover what are essentially "short" option trades by exiting these positions at a loss. Again, the call options that YieldMax is selling gain in value when SMCI rises, but that works against the strategy at work here. SMCY's managers want the value of the options they've already sold to lose ground. Sooner or later, it will happen. Even if it only happens occasionally, it can hurt the value of the fund in a hurry. The other downside is just the cost of managing such a fund. Unlike enormous index funds like the SPDR S&P 500 ETF Trust or the Vanguard S&P 500 ETF, the YieldMax SMCI Option Income Strategy ETF's annual expense ratio -- or management fee -- is hefty, at nearly 1%. Despite what many fund companies will argue, that does take a direct toll on net performance. Also, bear in mind that income-generating funds like this one tend to create a pretty big tax liability every year. Distributions are essentially dividends, after all. Still, there are some scenarios where an exchange-traded fund like this one makes sense for certain investors. Growth investors who would like some of their gains in the form of ongoing income, for instance, may be interested. That's particularly true if the position is going to be held within a tax-deferring retirement account. The key, of course, is just figuring out whether or not the underlying stock in question is worth owning in the first place. If you don't actually want to buy and hold Super Micro Computer, the income aspect of YieldMax SMCI Option Income Strategy ETF alone doesn't make it more attractive enough to matter. Fellow contributor Brett Schafer's got something to say about that. Before you buy stock in Tidal Trust II - YieldMax Smci Option Income Strategy ETF, consider this: The Motley Fool Stock Advisor analyst team just identified what they believe are the for investors to buy now… and Tidal Trust II - YieldMax Smci Option Income Strategy ETF wasn't one of them. The 10 stocks that made the cut could produce monster returns in the coming years. Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you'd have $699,558!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you'd have $976,677!* Now, it's worth noting Stock Advisor's total average return is 1,060% — a market-crushing outperformance compared to 180% for the S&P 500. Don't miss out on the latest top 10 list, available when you join . See the 10 stocks » *Stock Advisor returns as of June 30, 2025 James Brumley has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy. SMCY Is an Income Hack on Supermicro was originally published by The Motley Fool Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
