Summary YieldMax MSTR Option Income Strategy ETF (MSTY) offers high income via covered calls on volatile MSTR, but has suffered alongside MSTR's decline. MSTY's recent price drop is tied to MSTR's weakness and market volatility, not just NAV erosion, with distributions still attractive for income seekers. MSTY is best used as a small, aggressive allocation within a diversified income portfolio, not as a core holding due to its risk profile. Current MSTY price presents a more favorable entry point; upside is tied to a rebound in Bitcoin and MSTR, with less risk of NAV erosion now. YieldMax MSTR Option Income Strategy ETF ( MSTY ) is among the more well known of the synthetic covered call ETFS. Not only is it highly covered and commented upon, but it also has $2.25 billion in assets under management ( AUM ) and trading volume of approximately 18 million daily. The primary purpose of the ETF is to generate income using a covered call strategy with the underlying stock being Strategy Inc. ( MSTR ), which has been out of favor since the middle of July, losing over half of its market cap during that time. From the latter part of February 2025 to mid-August 2025, MSTY had a nice run, paying out high distributions while retaining its NAV. Since August 19, 2025 however, when the share price broke below its six-month floor, it has continued to drop in conjunction with MSTR, resulting in a new 52-week low below $8.00 per share. NAV erosion or response to the underlying? Interestingly, as the chart below shows, MSTY didn't break away much from the share price movement of MSTR, mirroring most of that movement without getting crushed. That suggests to me that MSTY isn't simply dropping because of NAV erosion, by which I mean paying out more than the covered calls are generating in income. MSTY chart (Seeking Alpha) To the contrary, I think it's a combination of the performance of the underlying, along with the high distributions being paid out. When studying MSTY and other covered call ETFs, the one thing that can be counted on is the quality of the underlying stock management is writing options against. In the case of MSTR, we know it's a volatile stock that many think has yet to prove its Bitcoin strategy is sustainable long term. For that reason, there's lot of volatility coming from the swings in the price of Bitcoin. And when adding macro elements like increasing chatter about a recession and uncertainty as to how committed the Federal Reserve is in regard to continuing to lower interest rates, it has created a perfect storm of concern and fear that has, in my opinion, had a disproportionate impact on MSTR, and by extension, MSTY. Until that works itself out, I think we're not going to see and price discovery on the low side for MSTY, which would result in potential investors to take a position in, or increase their position in the ETF. Also, we're seeing more of the opposite, with those holding the ETF panicking and rushing toward the exits. What has changed with Bitcoin A major reason for the continual volatility is that there are new players in town in contrast to the retail investors of the past that were committed hodlers. That has changed, not only with large institutional investors and retail whales, but also a new breed of trader that moves in and out of Bitcoin and other cryptos in order to take advantage of short-term price swings. It appears to me that there are a small portion of institutional investors and whales that are precipitating some of this, and that has had an impact on the fear trade and wild price movement of Bitcoin, MSTR, and MSTY. Over the long term that's going to change, as there are a growing number of institutional investors and retail whales that are taking positions in Bitcoin for the long term. I see that, over time, having the prolonged impact on Bitcoin, which will lend support to MSTR, and MSTY will be the beneficiary of that. Also, we need to take into account that when the big rebound comes for MSTR, that MSTY isn't going to participate in the upside of the price movement to the same degree as Strategy does. Nonetheless, what will happen is it should be able to boost its distributions as the price of MSTR returns to strong growth again. At that time I think we'll have price discovery for the ETF and a consistently accurate expectation as to its performance. MSTY disributions (Seeking Alpha) Volatility will of course remain in play, but the price will continue to move up in conjunction with Bitcoin and MSTR, providing those seeking income a nice return, albeit not at the same pace. That day isn't here yet, but once we see the rebound in Bitcoin we'll get a much clearer look at how MSTY is going to perform under that new environment. How I see the best-case scenario going forward for MSTY is, after Bitcoin and MSTR reverse direction, MSTY will probably start to trade sideways with a slight upward movement in its share price. The degree of that upward movement should be connected to the distribution being paid out. Part of a portfolio Online I've seen people on various social platforms state that they're allocating significant percentages of their investment capital in high-yield ETFs like MSTY, thinking they're hastening their goal toward financial independence. This is a very risky strategy to employ in the income-generating segment of the market. An ETF like MSTY should be part of portfolio of income-producing investment instruments, with a balanced number of ETFs or other securities representing a spectrum of safer and more aggressive holdings. It would be wise to have a foundational strategy of low-risk ETFs that include at least one that tracks the S&P 500 and the Nasdaq. There are of course different things to consider when putting together a portfolio of income-producing ETFs, including age, risk factors, and retirement goals, among other things. But to buy one high-yielding ETF like MSTY as a significant percentage of an overall income portfolio is playing with fire. I like MSTY as the more aggressive part of an income portfolio, yet it should only reflect a relatively small percentage of the weighting of the basket of ETFs. Conclusion I don't blame investors for getting concerned over the drop in price of MSTY, especially if they have a much higher cost basis than it is currently trading at. A couple months ago I sold my shares because I believed the share price was going to steeply drop, and it has. I had enjoyed a nice return during the period of time when MSTY was paying out solid distributions while retaining NAV. The high distribution levels easily overcame the drop in share price, but I correctly assumed it was going to be difficult to do so in the near term. My cost basis was slightly over $20.00 per share when I sold, and it has dropped by over $12.00 per share from that point as I write. What I figured was it would take a long time to recoup my capital, not only from the drop in share price but from what I expected would be drop in distributions at the same time. That has also came to pass, so now I'm in a waiting pattern until the bottom of Bitcoin comes in and confirmation it has hit the floor during this period of time is clear and confirmed. Once that happens, I will seriously look at opening another position in MSTY. At the current price point of the ETF, I'm not too concerned about NAV erosion. I'm more interested in how management responds to the inevitable return to Bitcoin price growth, and how well they do in generating income from covered calls in an environment that returns to growth in the price of Bitcoin and the underlying. Finally, when the price of MSTR reverses direction, I think MSTY management will start to pay out higher distributions again, taking into account they'll fluctuate week to week based upon MSTR's response to the price movement of Bitcoin. For that reason, I think the price MSTY is trading at now is close to a good entry point. The downside is much less than when it was trading earlier in the year, and assuming my thesis concerning distributions is correct, it should be a much better holding for income generation than it was in the past, with less risk concerning NAV erosion.
