On Wednesday, YieldMax rolled out its next option strategy fund, the YieldMax Short COIN Option Income Strategy ETF (FIAT ). FIAT has a twofold goal. Primarily, the fund aims to provide investors with current income. Secondarily, it seeks inverse, indirect exposure to the common share price of Coinbase Global, Inc (COIN).
As for investor expenses, FIAT launched witha net expense ratio of 0.99%. The fund uses an actively managed strategy.
To generate inverse exposure to Coinbase stock, FIAT uses a synthetic covered put strategy. By doing so, the fund aims to achieve income from options investments along with additional profits when Coinbase’s share price decreases.
While FIAT may benefit from drops in Coinbase’s share price, the potential price returns have a limit. In instances where Coinbase’s stock sees significant gains, FIAT buys out-of-the-money call options to limit any potential losses.
Options in Play
To curate a synthetic covered put strategy, FIAT both buys and sells a mix of standardized exchange-traded and FLEX option contracts. These option contracts may be either call or put options. Those are based on the share price of Coinbase stock. The fund uses European FLEX options, but reserves the right to use alternate option styles.
For the synthetic short exposure, the ETF simultaneously sells call options and buys put options. The put and call options generally have terms between three to six months. FIAT aims to keep strike prices for the options roughly equal to the current share price of COIN upon purchase or sale. With this investment combination, the fund aims to have -100% exposure to COIN’s share price changes.
Income for FIAT will come through monthly distributions. While much of the income will come from selling put options, the fund also invests in short-term U.S. Treasury securities. These securities also serve as collateral for FIAT’s put strategy.
YieldMax currently has over 25 different option strategy ETFs available on the U.S. market. These funds account for over $4 billion in assets under management.
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