Putting almost $200k in to Yieldmax ETFs was an experience

view original post

The Allure of Sky-High Yields

Earlier this summer, a colleague who is always on the hunt for juicy returns took a daring plunge: he sank nearly $200,000 into three YieldMax ETFs: the YieldMax Meta Option Income ETF (NYSEARCA:FBY), the YieldMax MSFT Option Income Strategy ETF (NYSEARCA:MSFO) and the YieldMax Palantir Option Income Strategy ETF (NYSEARCA:PLTY), in pursuit of their astronomical yields.

Inspired by the YieldMax Ultra Option Income Strategy ETF (NYSEARCA:ULTY), which boasted an eye-watering 84% annualized yield, he saw these funds as a fast track to passive income nirvana. Over seven weeks, his experiment delivered thrilling payouts, gut-check volatility, and a crash course in the risks of high-yield ETFs that every investor should heed.

The Allure of Covered Calls

My colleague isn’t new to investing, but the mechanics of YieldMax ETFs hooked him. Unlike traditional dividend stocks, FBY, MSFO, and PLTY use covered call strategies, selling options on single stocks — in this case Meta Platforms (NASDAQ:META), Microsoft (NASDAQ:MSFT), and Palantir Technologies (NASDAQ:PLTR), respectively — to generate hefty income. FBY capitalizes on Meta’s tech-sector volatility, MSFO leverages Microsoft’s steady growth, and PLTY rides Palantir’s wild, meme-stock-like swings. 

Today, their annualized distribution rates are still staggering: roughly 47% for FBY, 32% for MSFO, and 80% for PLTY. These figures, while variable, dwarfed the 1% to 2% yields of blue-chip stocks. He envisioned monthly distributions padding his account, a far cry from the slow drip of conventional ETFs like the Vanguard S&P 500 ETF (NYSEARCA:VOO).

The Big Bet

In early June, my colleague decided to go all-in, allocating around $66,000 to each ETF. He bought FBY at $14.50 per share, MSFO at $16.20, and PLTY at $54.40, securing roughly 4,552, 4,074, and 1,213 shares, respectively. 

Over seven weeks, monthly distributions poured in. FBY yielded over $4,710, MSFO totaled more than $3,660, and PLTY delivered $7,620. Combined distributions hit $15,990. By the end of July, share prices had also climbed, adding over $32,800 in capital gains. My colleague’s total profit was $48,798, a 24.40% return on his $200,000.

Hidden Costs of High Yields

The payouts, though, came with strings. Covered calls capped upside — if Meta, Microsoft, or Palantir surged, the ETFs lagged. Expense ratios of 0.99% to 1.18% dwarf VOO’s 0.03%, eating into the returns. Volatility also struck hard; FBY wobbled when Meta dipped in mid-July, unnerving my colleague as he wondered about the long-term viability of the ETFs.

As their distributions include return of capital, it can erode net asset value, particularly if the underlying stock is especially volatile. Meta, Microsoft, and Palantir have all experienced sharp stock price movements this year.

Single-Stock Peril

His biggest wake-up call was concentration risk. Tying $200,000 to three stocks’ option strategies felt like a tightrope walk. Unlike ULTY, which spreads its investments across 15 to 30 stocks, FBY, MSFO, and PLTY each focus on a single company, amplifying volatility.

Online critics have called YieldMax “PonziMax,” warning distributions can mask NAV decay. My colleague, who was initially skeptical, grew more cautious after reviewing prospectuses that flagged single-issuer risks and variable payouts.

Cashing Out with Wisdom

By the end of July, he had enough and sold, securing his $48,800 profit — sweet! — but also rattled by the risks. The 24.40% return was a triumph, but he swore off making similar big bets in the future. 

He now caps high-yield ETFs at just 5% to 10% of his portfolio and leans on VOO for stability. Betting on covered call ETFs is like gambling at a casino: It’s all fun and games until you lose.

A Warning for Yield Chasers

My colleague’s $200,000 experiment with FBY, MSFO, and PLTY was a high-yield masterclass. Monthly payouts were seductive, but capped gains, steep fees, NAV erosion, and single-stock risk demand vigilance. For those tempted to throw the dice on covered call ETFs, I’d recommend only modest allocations, wide diversification — and never, ever bet the farm.

Thank you for reading! Have some feedback for us?
Contact the 24/7 Wall St. editorial team.