Strategy (MSTR) Is Interesting, but MSTY Is Better

And it shows no signs of letting up anytime soon

But here's the thing: If you want regular cash flow and a steady of high monthly income, those capital gains aren't going to help you

You will only generate income if you sell the stock

As an alternative, you could invest in the YieldMax MSTR Option Income Strategy ETF (MSTY 0

This exchange-traded fund (ETF) generates monthly income for investors using options tied to Strategy stock

There's a lot to unpack, so let's take a closer look

The YieldMax MSTR Option Income Strategy ETF is an investment duct that offers extreme exposure to Strategy stock

You can think of it as a "1-stock ETF," except that you don't actually own the underlying stock in the ETF

Instead, the ETF generates income by selling (i. , "writing") call options on Strategy stock

This income for the investor is measured in terms of distribution rate

This refers to the income generated by the ETF as a percentage of its net asset value

The higher the distribution rate, the more money you receive

That's much higher than the distribution rates of other YieldMax ETFs

This high distribution rate is the result of a nifty feat of financial alchemy that uses derivatives (i. , options) to transform a non-yield-bearing asset (MSTR stock) into a yield-bearing asset (the MSTY ETF)

In short, you're able to generate a yield from Strategy stock, even though it pays no dividends to investors

That's Wall Street magic

What are the trade-offs involved

As you might have guessed by now, there are some trade-offs involved

After all, on Wall Street, there is no such thing as a free lunch

So, in exchange for giving up some of the high upside potential of MSTR stock, you get a steady monthly income

The strategy is designed to work best when the price of MSTR is not expected to soar dramatically in value

Image source: Getty Images

This is very important to keep in mind, since Strategy is highly leveraged to the price of Bitcoin

If the price of Bitcoin surges in value dramatically, then you could be losing out on some of the potential upside of holding MSTR stock

Yes, you will still be generating income and earning a regular yield via the ETF, but it might leave you feeling a bit disappointed, since you do not own s in the company

On the other hand, if the price of MSTR does not surge in value or falls only slightly, you should come out ahead, because people will still be buying call options on that stock

Thus, you will still be earning income

As YieldMax advises potential investors, this ETF duct is best for those who are neutral to moderately bullish on Strategy, and who want monthly income and regular cash flow

It should be used for diversification purposes, and should not commise a significant portion of your overall portfolio

Caveats options Before in the YieldMax MSTR Option Income Strategy ETF, I would highly advise becoming familiar with call options, just to understand how they behave under different scenarios

At the very least, you should familiarize yourself with basic option payout charts

This YieldMax ETF employs a covered call strategy, meaning any call option is written against a stock that is already owned

Nically, this YieldMax ETF employs a "synthetic" covered call strategy, since it uses a combination of different options to simulate a covered call position, without actually owning the underlying stock

As an investor, all of this happens behind the scenes, and you don't need to know anything options for the strategy to work

So, even though this might sound incredibly complex, YieldMax does all the heavy lifting for you

At the end of the day, if you're hunting for some extra monthly income and are excited generating some yield from an investment that normally does not offer any, then the YieldMax MSTR Option Income Strategy ETF could be worth a closer look

Dominic Basulto has positions in Bitcoin

The Motley Fool has positions in and recommends Apple, Bitcoin, and Tesla

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