 Hey everyone, I want to share some thoughts with you about the Yieldmax ETFs. So you may have seen a lot about this in the press lately, for example, TSLY. And let's talk about how these work and are these a good investment? So if you don't know, Yieldmax ETFs are essentially ETFs that have been created where they use options to trade essentially a synthetic covered call on the underlying stock. So if you go to their website, Yieldmax ETFs, you'll see there's one on ARK Innovation Fund, there's one on Tesla, there's one on Apple, there's one on Nvidia, there's one on Amazon, Meta, Google, Netflix, Coin, Microsoft, Disney, XOM. And so essentially what they're doing is like I said, they're doing synthetic covered calls on the underlying stock and they're promoting the distribution rate. So you see TSLY, which is the most popular one, you can see they're touting a distribution rate of 47.89%. So what does that exactly mean? Well, let's dig in. So if you go to the prospectus, what you'll see is A, there's a almost a 1% management fee. So you're paying a 1% fee per year for them to manage this for you. And essentially what they're doing, if you scroll down into the prospectus is here's exactly what they're doing. They are doing a synthetic covered call. They're purchasing call options at the money, six months to one year out. Simultaneously, they're selling put options at the money, six to one year out. And then they're also selling call options one month or less until expiration. And these are out of the money by 5% to 15%. They're also investing, they have a lot of cash because they're not actually buying the stock. They're using synthetic stock using options. So they have cash that they are that's sitting in US Treasuries with six months to two year maturities. So what does that look like? Can you do this yourself without paying them a fee? Absolutely you can. If you have any knowledge of options whatsoever, it's pretty simple. So essentially what they're doing is they're going out, like I said, six months to a year. So let's just choose the 224 days to expiration. That'd be the April 19th cycle. And we're going to go at the money, like they said, at the money in Teslas trading at 248, call it 250. So they would be buying the 250 calls and simultaneously selling the 250 puts. If we take that over onto the Analyze Risk Profile Graph in Thinkorswim, here's what that looks like. Well does that remind you of anything else? If you've ever looked at a risk profile graph of just buying the stock, it looks almost identical. In fact, let's just take a look at that. If we buy 100 shares of Tesla, take that over, it looks almost identical. In fact, if you look at, okay, so Tesla's trading a little under 250. If we put a price slice up at a little under 280, so we'll call it $30 higher. If you buy 100 shares of Tesla, you could be up $3,000 if that happens. Or if it goes down the same amount, you could be down $3,000. That's how buying and selling a stock works. Well if we look at the synthetic stock using options, it's pretty much the same. You go up that same amount, you're up $3,000, down the same amount, you're down $3,000. So it's literally synthetic stock. You're just using options so that you don't have to put up as much capital as you would if you actually bought the stock. Then simultaneously what they're doing is they're going to options 30 days or less, so let's just choose the 28 day. And they're selling calls 5 to 15% out of the money. So let's just call it, let's go to the 300 strike as an example. That would be in that wheelhouse. You could sell that for a buck 50-ish, buck 49. Let's put that onto the analyze tab and there you go. That is literally what you're looking at for a synthetic covered call. That's exactly what they're doing in the fund. Now you can do it. You don't even have to pay them 1%, right? Now, does that mean it's a bad investment? No, I mean there's certainly a lot of people who don't want to actively manage options. Could it be a good option? Sure, could be, but I want you to know exactly what they're doing. And you also need to know what that means if you're an investor in the ETF. Does that mean that your investment is going to do better than just holding Tesla stock? No, in fact, not necessarily. I mean, sometimes if the market is moving lower or grinding sideways, this will perform better than Tesla. If Tesla is skyrocketing higher, just being in the stock of Tesla is going to perform better. In fact, in the perspective, it even says that you're capping your upside, which is exactly what a synthetic covered call would do. So that's that. So going back to the website, let's dig a little bit deeper into what they're showing with TSLY. Excuse me. With that distribution rate, essentially that is the income from the options that are being spun off, and the interest that you're getting from some of the money sitting in UST bills. If you scroll down, you'll notice here's what the distributions have been for on a one month basis, three months, year to date. And actually, I'm sorry, this is actual actual price. Actually, the actual performance of the ETF is what this is showing here. So it is going to track somewhat similarly to the price of Tesla. It'll be a little bit different. And then the distribution detail is down here. So every month, they're showing the distribution per share. And that added up, that's where they're getting this 47.89% number. Now, does that mean that's going to be what it's going to be in the future? No, absolutely not. That's what it is based on the current rates. So that's how that works. You can scroll down and see the top 10 holdings. So you can see how much they currently have as of this date in US Treasuries. You can see how much they have in this US Treasury. You can see which call options they have. You can see other cash and other. So you can see exactly what options they currently have and exactly what they're doing. And if you have any knowledge at all of trading options, like I said, you can actually do it yourself. So a very interesting concept. The other thing you got to be aware of with kind of, call it, leveraged ETFs like this is they will have a downward drag over time. The best example I can give you to illustrate this is like one of your volatility, you know, VIX based ETFs like VXX. If you zoom out on a chart of VXX, what you'll notice is that over time, they always keep going down and down and down. And once they get too cheap, they will reprice that and essentially do a reverse split to increase the price back up so it's more tradable. These will essentially have the same kind of downward drag to them. However, is that downward drag going to be too much to offset the distribution rate? I mean, that's a pretty solid distribution rate if that continues to be anything close to that. And you can look at, obviously Tesla is a little bit more volatile. You can look at some of the others, you know, Apple is showing an annual rate of just 13.91 in video, which has been fairly bullish as well as volatile at the time of this recording, you know, over 46% ARC 29. So, you know, it depends on the volatility. It depends on how the underlying stock is moving, but, you know, the distribution rates are pretty solid and should over time do a pretty good job of keeping up with that downward drag that you might see on the actual price of the ETF. If we go to a chart of, let's go back to Tesla as the example, you know, here's a chart of Tesla and let's just, let's just go from the start of 2022 through the end of today, which is September 8th. So there's a chart of Tesla, so you can kind of get a pretty good idea of how the price of Tesla has performed year to date. Now let's go to Tesla and take a look at that and you'll notice the way that it's moved is also fairly similar to Tesla, although not quite as high because of that, you know, they're selling options. You're capping your profits on this trade, but you're also, if Tesla's trade sideways, this is going to actually perform better than Tesla. So the ETF today is trading at 14.05 is where it closed, okay? So if it goes up, if the price of Tesla goes up, most likely the price of this is also going to go up. Now it's not going to be one to one on a percentage basis, but it will track somewhat with the price of Tesla. But you also have the risk to the downside if Tesla trades lower, the ETF is going to trade lower as well. So you need to understand that you've got to be cognizant of the risk of holding the ETF from a fluctuation in price standpoint, but also based on the contango of the drag because it's constantly rolling the options and paying the distributions as well. So hopefully that helps, hopefully that clears a little bit up and lets you have a little bit better understanding of how these ETFs work. Very interesting concept. I will be watching closely. In fact, I've put a little bit of money in a few of them just so that I watch them and see if there's any other little nuances that I'm missing out in. I did read through the prospectus in great detail word for word to make sure there was nothing that was kind of being hidden or anything, but didn't really find anything. It's a really cool concept and so I just wanted to share my findings, hope that helps.