On Thursday, YieldMax debuted the YieldMax SMCI Option Income Strategy ETF (SMCY).
As the latest YieldMax option income ETF, SMCY seeks to provide current income. Additionally, the fund also aims to provide some exposure to the share price of Super Micro Computer Inc. (SMCI). The fund has a net expense ratio of 0.99% and is actively managed.
To achieve its investment goals, SMCY utilizes a synthetic covered call strategy. Through the use of a covered call strategy, the fund could simultaneously provide both yield and indirect exposure to SMCI’s share price returns.
Income and Exposure from Option
For the fund’s strategy, SMCY will buy and sell a mix of call and put option contracts for SMCI’s price returns. These options may either be standardized exchange-traded or FLexible EXchange (FLEX) contacts.
In order to facilitate a synthetic covered call strategy, SMCY utilizes a multi-step process. First, the fund simultaneously buys and sells call and put options on SMCI in an effort to replicate price movements. Generally, these options have terms ranging from one to six months.
For the second part of the strategy, SMCY writes Super Micro Computer call options to bring in income. However, these call options will be sold short, as SMCY does not own any shares in SMCI. Per the fund prospectus, call options will likely have an expiration of one month or less, with a strike price that is up to 15% higher than SMCI’s share price at the time.
Short-term U.S. Treasury securities will also be held by SMCY for two reasons. These securities can bring extra income and serve as collateral for the synthetic call strategy.
With over 30 ETFs listed in the United States, YieldMax has extensive experience in piloting synthetic covered call strategies. One of YieldMax’s largest ETFs, the YieldMax COIN Option Income Strategy ETF (CONY ), has over $560 million in assets under management.
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