Understanding Covered Calls
Discover how YieldMax ETFs use covered call strategies to generate extraordinary monthly income from your favorite growth stocks
How Covered Calls Work
Own the Stock
The fund holds shares of the underlying stock (or equivalent exposure)
Sell Call Options
Sells call options against the position to generate premium income
Collect Premium
Receives immediate income from option buyers
Monthly Distribution
Distributes collected premiums to shareholders monthly
Real-World Example: TSLY
Tesla Covered Call Strategy in Action
Let's see how TSLY generates income from Tesla stock:
Monthly Income per Share
Annualized Yield: 36%
Key Benefits of Covered Calls
- Generate consistent monthly income
- Reduce portfolio volatility
- Profit in sideways or slightly bullish markets
- Immediate premium collection
- Downside cushion from premiums
Covered Calls vs Buy & Hold
| Aspect | Covered Call Strategy | Buy & Hold |
|---|---|---|
| Income Generation | ✓ Regular monthly income | ✗ No income unless dividends |
| Upside Potential | Limited to strike price | ✓ Unlimited |
| Downside Protection | ✓ Premium provides cushion | ✗ Full exposure |
| Volatility | ✓ Reduced | Full market volatility |
| Best Market | Sideways to moderately bullish | Strong bull markets |
Covered Call Risk Level
Covered calls are considered a moderate-risk strategy that reduces volatility compared to holding stocks alone
How YieldMax ETFs Enhance the Strategy
YieldMax's Advanced Approach
YieldMax ETFs take covered calls to the next level with sophisticated techniques:
🎯 Synthetic Positions
Uses options combinations to replicate stock ownership without actually buying shares, improving capital efficiency
📊 Dynamic Strike Selection
Adjusts strike prices based on market conditions to maximize premium income while managing risk
🔄 Active Management
Professional traders actively manage positions to capture opportunities and protect capital
Frequently Asked Questions
High yields come from selling call options on volatile stocks. The more volatile the underlying stock (like TSLA or NVDA), the higher the option premiums. YieldMax ETFs capture these premiums and distribute them monthly, resulting in yields often exceeding 50-100% annually.
If the stock rises above the strike price, the fund's upside is capped at the strike price. The fund keeps the premium but misses out on gains above the strike. This is why covered calls work best in sideways or moderately bullish markets.
Yes, if the underlying stock declines significantly, the ETF will lose value. The option premiums provide some cushion, but won't fully protect against large drops. The fund's NAV can decline even while paying distributions.
Distributions from covered call ETFs are typically taxed as ordinary income, not qualified dividends. This means they're taxed at your regular income tax rate. Consult a tax professional for your specific situation.
Ready to Start Earning?
Use our tools to find the best covered call ETFs for your portfolio