Can You Really Get 55% Yield from the YieldMax AMD Option Income Strategy ETF (AMDY)?

Advanced Micro Devices (NASDAQ:AMD | AMD Price Prediction) continually raises the bar in advancing artificial intelligence (AI) chip design. The company is consistently profitable, and Advanced Micro Devices’ shareholders have enjoyed considerable returns over the years.

Some commentators are even discussing the possibility that Advanced Micro Devices could reach a $1 trillion valuation soon. Yet, although Advanced Micro Devices only seems to get bigger and better over time, the company still doesn’t pay any dividends to its shareholders.

So, is there a way to invest indirectly in Advanced Micro Devices and receive dividend-like cash distributions in your account? This is actually possible through an exchange traded fund (ETF) brought to you by YieldMax.

This fund is a real attention grabber, but don’t even think about buying shares until you know the essential facts. Based on AMD stock, it’s an ETF with a mind-boggling distribution yield and frequent payouts — but there are warnings to heed and critical questions about whether the yield is “real” or not.    

Don’t Expect Any Guarantees

Without a doubt, what attracts investors to the YieldMax AMD Option Income Strategy ETF (NYSEARCA:AMDY) is its advertised 54.65% annualized distribution rate. Since AMD stock doesn’t pay any dividends or cash distributions at all, the AMDY ETF seems like a much better choice. 

Not only that, but the YieldMax AMD Option Income Strategy ETF pays out cash distributions on a weekly basis. Just imagine how much passive income you could earn through compounding if you reinvested the distributions every week.

Don’t pull the trigger and buy AMDY shares yet, though. For one thing, I need to provide you with a quick overview of how the fund manages to generate a nearly 55% distribution rate.

First, the YieldMax AMD Option Income Strategy ETF uses synthetic option strategies to indirectly replicate the effect of holding AMD shares. Also, the AMDY ETF sells covered call options and/or option spreads to generate weekly income.

Option trading can be complicated, and the YieldMax AMD Option Income Strategy ETF deducts 1.23% worth of operating expenses annually from the fund’s share price. That’s the price you would pay to let the fund managers do all of the option trading on your behalf.

Furthermore, option prices fluctuate and YieldMax cannot guarantee that the AMDY ETF’s distribution rate will stay at its current rate in the future. That rate could rise but it can also get cut on any given day, so don’t assume that the fund will provide you with steady, consistent weekly income.

Here’s Where AMDY Could Go Wrong

Thus, the nearly 55% distribution of the YieldMax AMD Option Income Strategy ETF is “real,” but it’s liable to change again and again. Plus, there are other potential issues to watch out for.

Since the AMDY ETF sells covered call options and/or option spreads, the fund’s share price probably won’t rise in tandem with AMD stock. Covered calls tend to have a limiting effect on share prices, so Advanced Micro Devices could rally sharply while AMDY’s share price barely rises at all.

Then, we have to consider what happens when the YieldMax AMD Option Income Strategy ETF pays out a weekly distribution. Sure, you’d receive a cash payment in your account, but the AMDY ETF’s share price would decline by that same dollar amount.

The net effect can be frustrating. Notice that, over the past 12 months, the share price of the YieldMax AMD Option Income Strategy ETF declined 27%. In contrast, the AMDY ETF’s share price rose 85% over the past year.

Paying the Price

The bottom line is that you can actually collect weekly income and get a 54.65% distribution rate from the YieldMax AMD Option Income Strategy ETF. On the other hand, that yield is susceptible to change and the fund deducts operating expenses from the share price.

Not only that, but recent history shows that the AMDY ETF is likely to underperform AMD stock in terms of share-price performance. The difference can be severe, to the point where the YieldMax AMD Option Income Strategy ETF’s cash payouts aren’t so alluring anymore.

Hence, you could end up paying a big price for holding the AMDY ETF even while you’re gladly collecting those week-to-week distributions. For this reason, the YieldMax AMD Option Income Strategy ETF may be fine for a tiny portfolio allocation, but directly owning AMD stock shares is generally a more reliable way to grow your wealth.