The TSLY ETF Is an Income Monster
Key Takeaways
Many ETFs have come onto the market recently that use various options strategies to boost income. For example, some ETFs use covered call strategies to duce yields of 10% or more...
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investment
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July 3, 2025
09:23 AM
The Motley Fool
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Many ETFs have come onto the market recently that use various options strategies to boost income
For example, some ETFs use covered call strategies to duce yields of 10% or more for investors from relatively low-paying portfolios of stocks
YieldMax ETFs take this idea to the next level, using aggressive strategies to, as the name suggests, maximize yield
It's not uncommon for YieldMax ETFs to have dividend yields of 30%, 40%, or much higher in some cases
One extreme example is the YieldMax Tesla Option Income Strategy ETF (TSLY -0. 31%), which uses call option strategies on Tesla (TSLA -0. 49%) stock to duce a high level of monthly income
In fact, based on the past 12 months of dividends, the ETF has a dividend yield of 127%
Of course, if something sounds too good to be true, that's usually the case
If there was an ETF that duced a sustainable three-digit yield and was ly to do so for the foreseeable future, we'd all be scrambling to buy s
But in this case, there are quite a few caveats and important things to know before you consider
Image source: Getty Images
How the TSLY ETF works It might surprise you to learn that the majority of the YieldMax Tesla Option Income Strategy ETF's assets are in U
It uses these as collateral to buy and sell options on the stock, which are typically near the current price
For example, the largest non-Treasury position in the portfolio is July 2025 call options with a $340 strike price
Some of the positions are long, some are short (meaning the ETF sold options), and there are some put options in the portfolio as well
The general goal with the options positions is to create the highest of income relative to the risk level as possible
Risk factors to consider There are two big risk factors to consider
First, and less significant, is the inconsistency of the monthly dividend payments you'll get
Over the past 12 months, the distributions from this ETF have been as high as $1. 29 or as low as $0
The bigger issue is that the stock price itself has a downward bias over time
In short, if the price of Tesla stock goes up, the ETF's options strategies severely limit the upside potential
On the other hand, if the stock falls, it can result in large losses
In fact, since the YieldMax Tesla Option Income Strategy ETF was formed in late 2022, Tesla stock has risen by 92%
S of this ETF have fallen by 78%, and there's even been a reverse split along the way
Of course, even with a modestly declining price, an ETF this can still be a winner
In other words, if the ETF declines by say, 30%, but pays a 100%-plus yield, it's still a great investment
But that hasn't been the case
In fact, including dividends, this ETF has generated a 26% total return for investors since its 2022 inception
That's 52 percentage points worse than if you had simply bought Tesla stock and held on to it
Is the TSLY ETF right for you
In a nutshell, YieldMax ETFs duce the best total returns compared with simply buying the underlying stock in times when the stock is mostly flat for an ext period, without any massive price swings
And if you look at virtually any chart of Tesla's historic stock performance, you'll see that doesn't really describe its typical price action
The bottom line is that if you think Tesla stock is going to be stuck in a narrow price range for a while, the YieldMax Tesla Option Income Strategy ETF could be a good way to play it
Just be aware that this and other YieldMax ETFs aren't magical income instruments and are more ly than not to duce underperforming total returns over time
Matt Frankel has no position in any of the stocks mentioned
The Motley Fool has positions in and recommends Tesla
The Motley Fool has a disclosure policy.
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