There’ve been quite a number of unique ETFs that have popped up over the years. For income investors and those seeking to retire early, the YieldMax line of ETFs has been among the most exciting. There are high yields (think in the ballpark of 5-6%), ultra-high yields (7-9%), and then, there’s the YieldMax levels of yield (more than 80%).
In this piece, we’ll check out the YieldMax Ultra Option Income Strategy ETF (NYSEARCA:ULTY), which has numerous income investors talking. Currently, the distribution rate sits at a lofty 90.8%. The last time I checked, which was a few weeks ago, the yield was closer to 80%. For those who couldn’t care less about capital gains, the ULTY ETF really does stand out as an option that could add more shine to sophisticated self-run portfolios.
That’s a gigantic yield. Just don’t be disappointed if it fluctuates
Indeed, the massive dividend will go into the pockets of shareholders, but unlike traditional yields, they’re subject to greater near-term volatility. In many ways, their yields can be like a moving target that’s difficult to pin down.
And while the dazzling yield may cause some risk takers to punch their ticket to shares without even understand how it was possible to command such a payout to begin with, I do think that the ETF should be viewed as a “bonus” source of income, rather one that is to be leaned too heavily on, especially for those living on a fixed income.
Could you get paid such a yield over the next year without interruptions, as planned?
Sure, but at the same time, there’s also potential for the yield to fall lower than expected. Indeed, this works both ways as well, given that the YieldMax ETF’s yield depends on conditions in the market, most notably how much option premiums on various hot stocks in the market are going for.
Even though August has been relatively quiet for the S&P, the ultra-choppy, exciting stocks that ULTY collects premiums on have continued to shine through the eyes of traders. Indeed, perhaps the best reason to own ULTY, I think, is not for the yield alone, but as a way to profit from the continued demand to get rich from the hyper-volatile speculative stocks, many of which ULTY writes covered calls against.
An intriguing way to play the boom in the hyper-volatile, high-flying growth stocks
If speculative activity in the most heated corners of the market is to remain heightened, ULTY has what it takes to win for investors. However, if the tables turn, there are downsides, too. As such, investors should understand the risk/reward before punching a ticket. If you’re looking for a steady income, perhaps it’s best to consider other options.
At the end of the day, ULTY has a towering yield, but it’s one that could prove wobbly, shifting by more than 10% in any given month. If that’s fine with you, averaging into a position could make sense, provided you’re not leaning at all on the yield.
If the AI revolution continues to play out, I have a feeling demand for call options on “what’s hot” could stay upbeat, and, with that, ULTY’s strategy could work well. There’s a lot of excitement out there, and until it subsides, I suspect ULTY could act as a risk-on ETF that could give those who know what they’re doing a nice jolt on the income side of things.
Is ULTY’s yield sticking around or going up in smoke?
In short, no, I do not think ULTY’s will go up in a poof of smoke. Can it fall by several percentage points unexpectedly? Sure. But don’t expect it to implode to zero. And even if the yield does take a dip from 80-90%, it could bounce back in short order if the options market plays ball.
It’s really hard to tell where the yield will be in the next month. It could stay at 90%, head back to 80%, or even swell to 100% if September volatility and bullishness crank things up.
Either way, I view ULTY as a worthy tool for ETF investors who can accept and mitigate the risks, or those who want to profit (in the form of distributions) from the continued hunger for call options in some of the market’s hottest stocks. Believe it or not, I actually like the ULTY in this environment for those who can handle the yield and share price volatility.
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