On Wednesday, YieldMax debuted its next option strategy fund, the YieldMax Short NVDA Option Income Strategy ETF (DIPS). This fund operates with a net expense ratio of 0.99%. For investors, DIPS seeks to generate current income, along with providing inverse exposure to common stock share price for Nvidia Corporation (NVDA).
An actively managed fund, DIPS utilizes a synthetic covered put strategy to meet its investment goals. By doing so, the fund aims to provide both income through the options investments and additional gains through the inverse exposure. This strategy will be applied regardless of economic and market conditions. As such, the fund will not take defensive positions during periods of volatility.
While DIPS does seek inverse exposure to Nvidia’s stock performance, the fund’s monthly income is not dependent on NVDA seeing poor results. Instead, income can be derived through the use of option premiums.
Established Option Strategy
Primarily, the fund utilizes FLEX call and put options in order to execute its strategy. While the fund will initially focus on European FLEX options, YieldMax reserves the right to use other options that are exercisable at any moment.
DIPS’ synthetic covered put strategy focuses on a multi-faceted process. First, the fund curates synthetic short exposure by buying put options and writing call options on NVDA. Along with helping to create short exposure, the sold call options can also generate monthly income for the fund.
To provide collateral for the strategy, DIPS will hold short-term U.S. Treasury securities. Additionally, the fund mitigates risk of loss by buying out-of-the-money (OTM) call options. The use of OTM call options can help lessen the loss if NVDA sees significant appreciation of value.
An experienced manager of option strategies, YieldMax has already seen great success with another Nvidia-focused strategy, the YieldMax NVDA Option Income Strategy ETF (NVDY ). As of July 22nd, 2024, NVDY has seen net flows of more than $270 million over the last month.
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