Is This ETF an Unstoppable Yield Machine?

After I published a couple of articles about dividends, the algorithms that rule my life have concluded that I’m a person who loves yield. As a result, I’m suddenly seeing all manner of content about amazing yield opportunities, such as YieldMax Ultra Option Income Strategy ETF ULTY. The fund has made distributions equivalent to about 126% of its market price over the past 12 months and recently surpassed $3 billion in assets.

The fund’s distribution rate has declined a bit to about 88% based on the most recent dividend payment. However, I’m skeptical about whether ULTY truly qualifies as an unstoppable yield machine.

Looking Under the Hood

Like other ETFs in the derivative income Morningstar Category, the fund uses a variety of options strategies to generate monthly income. When it first came out on Feb. 28, 2024, the fund mainly followed a covered-call strategy, buying shares of roughly 20 individual stocks and then selling call options on the same stocks to generate income from option premiums. In addition to traditional covered calls, it employed synthetic strategies, which use option contracts to simulate the profit potential of owning the underlying stock and selling call options against it.

A key part of the fund’s strategy involves focusing on stocks with high levels of implied volatility. Options written on highly volatile stocks typically command steeper prices because extreme price movements mean that there’s a greater likelihood the option will pay off.

Cashing in on rich premiums allowed the fund to collect more income on the options it wrote and, in turn, make large monthly distributions. But because option premium income and realized gains weren’t big enough to fully support those distributions, the fund had to repeatedly dip into capital. That explains the large amount of net asset value erosion it saw between March 2024 and February 2025, when the NAV dropped by nearly 70%, as shown in the chart below.

The upshot: Despite the eye-popping yields, shareholders weren’t really making money. On a total return basis, the fund lost 2.25% from its inception through February 2025.

That led to some shifts in strategy. Starting in November 2024, the fund began implementing some risk-control measures, including moving to an options collar strategy. This approach involves buying put options (in addition to writing calls) on individual stock holdings. The fund forgoes upside potential by selling call options, but the put options also limit potential losses, as shown in the illustration below.

In early 2025, the fund’s management team also moved away from using synthetic options strategies; instead, it typically owns the underlying stock in addition to writing calls and buying puts. And in March 2025, it shifted to a weekly dividend-payment schedule that was meant to reduce NAV declines related to distributions. Because the fund earns option income continuously, a weekly distribution schedule means there’s less of a lag between when it collects income and when it pays it out to shareholders.

The retooled strategy has worked relatively well so far. From March 10 through Aug. 13, 2025, the fund posted a total return of 27.7%, compared with 18.4% for the Nasdaq 100 index, a reasonable proxy for the type of highly volatile, technology-related stocks it typically buys. Over the same period, the fund’s NAV started at $6.31 per share and ended at $6.08 per share, though it dropped sharply in early April when tariff news roiled the market; it then gradually climbed back up to its current level.

Looking Ahead

Whether the fund can sustain this type of performance is an open question. The fund’s hefty distributions rely heavily on market volatility, which increases the value of the premiums it earns from selling call options. The fund’s management team amplifies this effect by targeting individual stocks with high levels of implied volatility, such as AST SpaceMobile ASTS, Regitti Computing RGTI, Reddit RDDT, and Upstart Holdings UPST.

It’s also worth noting that a large percentage of the fund’s distributions are classified as returns of capital. Based on information published on its website, about 40.8% of the fund’s most recent distribution (paid on Aug. 8) was considered a return of capital, with the remainder classified as income. Although YieldMax claims returns of capital are a tax treatment and not necessarily reflective of an economic loss, a fund can’t continuously distribute more income than it earns without eroding shareholder value.

Moreover, it’s unclear how the fund would fare in a different type of market environment. As shown in the chart below, the fund has generally captured a decent amount of daily upside returns during the market’s strongest rallies.

However, it has also experienced daily losses in periods when the market has dropped.

While put options should provide some downside protection, performance could still deteriorate during a more prolonged market downturn. And the fund hasn’t really been tested in a less bullish or less meme-stock-friendly environment. If the bull market in tech stocks reverses course or market volatility declines, the fund may not be able to collect as much premium income from selling covered calls. It would also probably incur much steeper costs to buy puts on individual stocks.

Those aren’t the only risks courted by this strategy. The portfolio is concentrated in about 25 individual stocks. And although its expense ratio is currently capped at 1.13% (through at least Oct. 14), that’s still pretty steep.

Overall, I’m skeptical about the fund’s long-term prospects, as premium income has been nowhere close to high enough to fund its distributions thus far. And at the end of the day, total return, not income, is the measure that matters for investors. With respect to the fund’s future risk/reward prospects, there’s plenty of reason to be doubtful. Results so far have been mixed at best, and there’s a nonzero chance that something will go wrong with the fund’s complex mix of long puts, short calls, and individual stock picks.

Ultimately, the famous quote from Legg Mason strategist Raymond DeVoe, Jr. bears repeating: “More money has been lost reaching for yield than at the point of a gun.”