Hollowing Out an ETF from Within
YieldMax TSLA Option Income Strategy ETF has lost around $200 million; it didn't have to be that way
To this point in its existence, YieldMax TSLA Option Income Strategy ETF (TSLY) has accomplished the following:
It has levied fees (ballpark: ~$13.5 million since its Nov. 2022 inception through Mar. 31, 2025)
It has made large distributions (~$972 million total since incept)
It has lost money (~$200 million since incept)
We’ll come back to the second point, but for the moment I’m going to focus on the third point—it has lost money.
TSLY’s principal strategy is to generate income (via options) and deliver part of Tesla’s return.
From its Nov. 2022 inception through March 31, 2025, the ETF lost around 3.4% of its value, or about 1.5% per year after fees. Over that span, Tesla earned a 19.6% return per year.
The shortfall of the ETF’s return versus TSLA is obviously not great. But what makes matters worse is investors appear to have had exquisitely bad timing in purchasing the ETF. They piled-in in 2023 after Tesla went on a run, only to see the stock—and thus TSLY—slide. And then they did it again late last year and early this year, chasing TSLA right off a cliff.
That has made for dismal returns in dollar terms: Based on YieldMax’s own accounting, the ETF had lost a cumulative $103 million from its inception through the end of its most recent fiscal year (Oct. 31, 2024).
I estimate it lost another $90 million or so from Nov. 1, 2024 through Mar. 31, 2025 amid TSLA’s tumble, bringing the sum total losses to about $200 million.
So, in summary, investors have pumped more than $2 billion into this ETF since inception; they’ve paid more than $13 million in fees on assets invested in TSLY; they’ve received distributions totaling nearly $1 billion (most of that return of their own capital); and they’ve lost the estimated $200 million I mentioned. This more-or-less explains why the ETF recently was sitting on less than $900 million in net assets.
What if investors had instead plowed that money at those times and in those amounts into TSLA itself and skipped the distributions? Yes, this is very hypothetical, as investors aren’t going to buy an ETF called “YieldMax” to begin with if it doesn’t make hefty distributions. Yet, it seems worth it to try to approximate how different the dollar outcome would have been had the capital been allowed to remain and if its upside wasn’t capped the way it is under the options strategy the ETF employs.
To that end, I substituted Tesla’s daily return stream for the ETF’s and then assumed none of the distributions had been made. Predictably, investors would have lost money — after all, they would still be putting money to work in Tesla just before it skidded to losses, same as they did with TSLY. But those losses weren’t nearly as deep — around $7 million by my estimates, or around $190 million less than what they’ve lost in TSLY so far.
Moreover, because the dollars that otherwise would have been distributed to investors would instead have been retained, and because the upside wouldn’t have been capped like it is in the ETF, the pool of assets wouldn’t have shrunk nearly to the extent it has in TSLY: Instead of there only being around $900 million left as of March 31, 2025, I estimate there’d be over $2 billion still sitting there.
The moral of the story? It’s obviously unfortunate when investors chase performance to their detriment in the way they appear to have done with TSLY. But it’s downright corrosive when they chase, their upside is capped, and they receive massive distributions of their own capital, as when that capital is pushed out it short-circuits compounding.
That brings us back to what I think is the very shaky if not false premise products like TSLY are based on: Namely, that you can monetize stocks’ hyper-volatility, turning it into an “income stream”. What I see is a cynical pattern in which the sponsor declares unsustainably large dividends, drawing in investors who are taken by the massive “yields”, only to have to reckon with the tradeoffs later.
The views and opinions expressed in this blog post are those of Jeffrey Ptak and do not necessarily reflect those of Morningstar Research Services or its affiliates.
Then what are your thoughts on ULTY which owns the underlying volatile stocks and writes covered calls? Seems the loses you describe have been sucked out of this one thus far as the price of the ETF has fallen from $45 to narrow channel around $6.40...meaning the market has concluded you are right up to a certain point. My confusion with these derivative income ETFs, like any ETF, is the market maker can destroy or add new shares at will...which leads me to believe they can add AUM to their capital stack, refueling the base...and thus create a quasi ponzi structure. Am I missing something here?
28 months is too small a sample size to draw conclusion. Is there a scenario analysis for different market environments where the strategy would win/lose?