YieldMax announced the launch of the YieldMax NVDA Option Income Strategy ETF. The actively managed fund seeks to generate monthly income via a synthetic covered call strategy on NVIDIA (NVDA) stock. The fund, which ZEGA Financial actively manages, does not invest directly in NVDA.
As part of its strategy, NVDY will write (sell) call option contracts on NVDA to generate income. Since the fund does not directly own NVDA, these written call options will be sold short.
The call options that NVDY writes will generally have an expiration of one month or less. They’ll have a strike price that is around 5% to 15% above the then-current NVDA share price at the time of such sales.
To achieve a synthetic long exposure to NVDA, the fund will simultaneously buy call options and sell put options on the fund. This will attempt to replicate the stock price movements.
The call options NVDY purchases and the put options it sells will generally have six-month to one-year terms. They’ll also have strike prices that are roughly equal to the then-current share price when the contracts are purchased and sold, respectively.
The combination of the long call options and sold put options provides the ETF with investment exposure equal to approximately 100% of NVDA for the duration of the applicable options exposure.
“We are seeing growing demand for covered call ETF strategies in 2023 as advisors seek equity income in a risk-controlled manner,” said VettaFi’s head of research Todd Rosenbluth.
See more: New Active Funds Offer Income and Exposure to Price of TSLA, ARKK
A Growing Suite of YieldMax ETFs
The launch of NVDY follows the recent listing of the YieldMax AAPL Option Income Strategy ETF (APLY ). APLY has a similar strategy to NVDY whereby it seeks to generate monthly income by selling/writing call options on Apple (AAPL) stock. And just as NVDY doesn’t invest directly in NVDA, APLY doesn’t invest directly in AAPL.
NVDY joins the suite of YieldMax ETFs. Funds include APLY, the YieldMax TSLA Option Income Strategy ETF (TSLY ), and the YieldMax Innovation Option Income Strategy ETF (OARK ). All YieldMax ETFs have an expense ratio of 0.99%.
“Given the market volatility expected in 2023, these new ETFs could gain some traction,” Rosenbluth added.
Toroso Investments is the adviser for all YieldMax ETFs. ZEGA Financial is their subadviser.
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