On Wednesday, YieldMax’s latest ETF, the YieldMax TSM Option Income Strategy ETF., opened for trading on the NYSE Arca.
A strategy that looks at Taiwan Semiconductor Manufacturing Company (TSM), TSMY seeks to provide access to current income. Additionally, the fund aims to remain exposed to the ADR share price for TSM.
The actively managed ETF comes with a net expense ratio of 0.99%. As part of the YieldMax strategy, the fund uses a synthetic covered call strategy.
Options-Focused Portfolio
As part of the covered call strategy, the fund will buy and sell a mix of standardized exchange-traded and FLexible EXchange (FLEX) options. To generate synthetic long exposure, TSMY will simultaneously buy call options for TSM while selling put options.
Looking at duration, the fund will mostly engage with options with a duration between one- to six-month terms. By use of options contracts, the fund can provide indirect exposure to TSM’s share price returns, along with current income from option premiums.
A crucial portion of TSMY’s income generation comes from selling call option contracts on TSM. Due to the fund not directly owning TSM assets, the prospectus noted that these options will be sold short.
To potentially activate greater participation in TSM’s capital appreciation, TSMY may opt to sell entire call spreads. The prospectus asserts that this strategy will mostly occur when TSM’s share price expects to see a significant jump in the short term.
With the added benefit of an active management team, TSMY’s call spread strategy can help the fund capitalize on substantial selloffs. This could also prove largely beneficial during periods of positive market or economic news.
Short-term U.S. Treasury securities will also exist within TSMY’s fund portfolio. These securities serve as collateral for the covered call strategy, along with opening opportunities for additional income.
TSMY’s strategy is bolstered by YieldMax’s extensive experience in managing option income strategies. One of the firm’s largest funds, the YieldMax COIN Option Income Strategy ETF (CONY), has over $650 million in assets under management.
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