CONY's Dreamy Yield Hides a Track Record That Should Concern Long Term Holders

CONY is a YieldMax ETF that uses a synthetic covered call approach on Coinbase. The fund holds Treasuries and maintains synthetic long exposure to COIN through options, then sells call options against that exposure to generate option premium. The premium is distributed weekly to investors. When COIN’s volatility is high, option premiums increase and distributions rise, but when volatility compresses, distributions decline. The strategy caps upside because calls are written above the current price, while investors still experience the full downside if COIN falls. Since launch in August 2023, CONY has produced about a 45% total return including distributions, while COIN and SPY delivered substantially higher returns over the same period.

"CONY runs a synthetic covered call strategy on Coinbase. The fund holds Treasuries and synthetic long exposure to COIN through options, then sells call options against that exposure to harvest premium. Those premiums get paid out as weekly distributions. When Coinbase shares whip around, which they do constantly given COIN's beta of 3.38, option premiums fatten and distributions follow. When volatility compresses, so does the income."

"The structural cost is that calls written above the current price cap your upside if COIN rallies, while you still ride the entire downside if it falls. You are renting out the ceiling and keeping the basement. That tradeoff means the headline yield depends heavily on option premium generation, which is tied to COIN’s volatility regime."

"CONY launched on August 15, 2023 at roughly $18 on a distribution-adjusted basis and trades today around $26. That works out to a roughly 45% total return since inception, distributions included. Over the same window, simply owning COIN delivered a 140%-plus return. Owning SPDR S&P 500 ETF (SPY), a boring index fund with an expense ratio of 0.0945%, returned 68% on price alone before counting its 1% dividend yield."

"The income engine is wheezing. CONY paid $2.79 per share in April 2024 when"

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