YieldMax ETF Glossary
Master the terminology of high-yield income investing and covered call strategies
Quick Reference Guide
Essential concepts for YieldMax ETF investors
A
Annual Distribution Rate ETF
The total distributions paid by an ETF over the past 12 months, expressed as a percentage of the current share price. This is the primary yield metric for YieldMax ETFs.
If MSTY pays $18 in annual distributions and trades at $20, the annual distribution rate is 90%.
At-the-Money (ATM) Options
An option whose strike price is approximately equal to the current market price of the underlying asset. YieldMax ETFs often sell ATM or slightly out-of-the-money calls to maximize premium income.
If Tesla trades at $250, an ATM call option would have a strike price of $250.
C
Covered Call Strategy Strategy
An options strategy where an investor holds a long position in an asset and sells call options on that same asset. This is the core strategy used by YieldMax ETFs to generate high monthly income. The "covered" part means the ETF owns (or has synthetic exposure to) the underlying stock, limiting risk.
TSLY holds Tesla exposure and sells Tesla call options each month. If Tesla rises above the strike price, TSLY's gains are capped but it keeps the option premium.
Call Option Options
A financial contract that gives the buyer the right, but not the obligation, to buy a stock at a specific price (strike price) before a certain date (expiration). YieldMax ETFs sell these to generate income.
A Tesla $260 call expiring in 30 days gives the buyer the right to purchase Tesla at $260, regardless of market price.
D
Distribution ETF
Cash payments made by YieldMax ETFs to shareholders, typically on a monthly basis. These distributions come from option premiums collected and are taxed as ordinary income in most cases.
MSTY might distribute $1.95 per share in June, representing income from selling MicroStrategy call options.
Downside Risk Risk
The potential for loss if the underlying stock declines. YieldMax ETFs have full downside exposure to their underlying stocks, meaning they can lose value if the stock falls, despite collecting option premiums.
If Tesla drops 30%, TSLY will also decline significantly, though the monthly distributions provide some cushion.
E
Ex-Dividend Date ETF
The date on which you must own shares to receive the upcoming distribution. If you buy shares on or after this date, you won't receive the current month's distribution.
If MSTY's ex-dividend date is June 20th, you must own shares by June 19th to receive June's distribution.
Expense Ratio ETF
The annual fee charged by the ETF, expressed as a percentage of assets. YieldMax ETFs typically have expense ratios around 0.99%, higher than passive index funds due to active management.
A 0.99% expense ratio means you pay $99 annually for every $10,000 invested.
I
Implied Volatility (IV) Options
The market's expectation of future price volatility. Higher IV means higher option premiums, which is why volatile stocks like MSTR and PLTR can generate such high yields in YieldMax ETFs.
PLTY has high yields (140%+) because Palantir has extremely high implied volatility, making its options very expensive.
P
Premium Options
The income received from selling an option. This is the primary source of distributions for YieldMax ETFs. Premium size depends on the stock price, volatility, time to expiration, and strike price.
TSLY might collect $3 per share in premium from selling monthly Tesla calls, which becomes the distribution.
Principal Risk Risk
The risk that your initial investment (principal) will decline in value. YieldMax ETFs can lose significant value if their underlying stocks fall, regardless of the income generated.
An investor who bought ARKKY at $20 might see it drop to $15, a 25% principal loss despite receiving monthly income.
S
Strike Price Options
The predetermined price at which an option can be exercised. For covered calls, this represents the price at which the ETF would have to sell the underlying stock if the option is exercised.
If NVDY sells a call with a $500 strike price on Nvidia, gains are capped at $500 even if Nvidia rises to $600.
Synthetic Position Strategy
A way to replicate stock ownership using options rather than buying shares directly. Many YieldMax ETFs use synthetic long positions to gain exposure to the underlying stock while maintaining flexibility.
Instead of buying Tesla shares, TSLY might use options to create synthetic Tesla exposure, allowing more efficient capital use.
Y
Yield ETF
The annual income generated by an investment, expressed as a percentage of its current price. YieldMax ETFs are known for extremely high yields, ranging from 20% to over 100% annually.
PLTY's 140% yield means a $10,000 investment could generate $14,000 in annual distributions (before taxes).
YieldMax ETF
The fund family that offers single-stock covered call ETFs designed to generate high monthly income. Founded in 2022, YieldMax has become popular among income-seeking investors for its innovative approach to generating yield from growth stocks.
YieldMax offers funds like TSLY (Tesla), NVDY (Nvidia), and APLY (Apple) that use covered calls to generate income.
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