68% Yield on Tesla? The Story Behind TSLY’s Massive Distributions

Income investors rarely look to high-growth tech stocks for yield. Yet the YieldMax TSLA Option Income Strategy ETF (TSLY) promises to change that equation.

Launched in late 2022, this innovative ETF has attracted attention with its staggering 68.6% dividend yield. Yes, you read that right.

But there’s more to this story than just the headline number.

Recent options market activity shows growing interest in Tesla-linked income strategies, reflecting broader demand for alternative yield sources in today’s market.

Our TrackStar data reveals increasing searches for income-focused ETFs targeting individual stocks, with TSLY emerging as one of the most watched funds in this category.

Let’s examine whether this unconventional approach to Tesla exposure makes sense for income investors.

Key Facts About TSLY

• Net assets: $1.0 billion
• 12-month trailing yield: 68.6%
• Inception: November 22, 2022
• Expense ratio: 1.01%
• Number of holdings: N/A

TSLY employs a sophisticated options strategy rather than directly investing in Tesla stock. The fund writes calls against synthetic long positions in TSLA while simultaneously selling put options.

This complex approach aims to generate significant income from option premiums while maintaining exposure to Tesla’s price movements. However, the strategy caps potential upside if Tesla shares surge while retaining downside risk.

The fund makes monthly distributions, with recent payments showing significant variation. 

Source: YieldMax

The latest distribution of $1.2208 per share continues a pattern of substantial monthly payouts, though these can fluctuate based on options market conditions and Tesla’s volatility.

Unlike traditional dividend ETFs, TSLY’s distributions come primarily from options premium rather than underlying dividend payments. This means the fund’s income stream depends heavily on market volatility and options pricing.

Performance

TSLY’s recent performance shows remarkable strength across multiple timeframes. The fund’s NAV surged 31.29% in the past month and 39.17% over the last quarter, demonstrating significant momentum.

Year-to-date returns of 20.76% and one-year gains of 29.67% highlight the strategy’s effectiveness in both generating income and capturing some of Tesla’s upside potential. Since its inception in November 2022, the fund has delivered a cumulative return of 32.89%, translating to an annualized return of 15.1%.

The fund’s market price closely tracks its NAV, with only minor deviations. The market price return of 30.92% in the past month and 38.26% over three months suggests efficient trading despite the complex underlying strategy.

With average daily trading volume of 2.75 million shares, TSLY maintains strong liquidity for an options-based product. This volume helps ensure investors can enter and exit positions without significant impact on the fund’s price.

Source: YieldMax

Competition

Our TrackStar data highlighted several other high-income ETFs offer alternative approaches to generating yield:

• JPMorgan Equity Premium Income ETF (JEPI): Sells out of the money call options on the S&P 500 to generate monthly income while holding a portfolio of low-volatility stocks selected through proprietary screening
• NEOS S&P 500 High Income ETF (SPYI): Employs a net credit collar strategy on the S&P 500, simultaneously writing calls and buying protective puts while holding the index. This options combination aims to generate income while providing downside protection.
• REX FANG & Innovation Equity Premium Income ETF (FEPI): Targets tech and innovation stocks, selling covered calls against individual positions. Offers concentrated exposure to high-growth names while converting potential upside into current income.
• NEOS Russell 2000 High Income ETF (IWMI): The newest entrant applies a covered call strategy to small-cap stocks through Russell 2000 index options, aiming to capitalize on higher small-cap volatility for premium generation.

Notably, the dividend yields and returns don’t always match, emphasizing the volatile nature of these ETFs.

Our Opinion 6/10 

 TSLY offers a unique way to generate income from Tesla’s volatility, but it comes with substantial risks. The fund’s sophisticated options strategy requires careful consideration.

The 68.6% yield appears unsustainable long-term and shouldn’t be the sole factor in investment decisions. The fund’s strong trading volume and reasonable expense ratio provide some comfort, but the single-stock focus amplifies risk.

This ETF might suit investors who:

1. Want exposure to Tesla with an income component
2. Can tolerate significant volatility
3. Understand options-based strategies
4. Are comfortable with potentially capped upside

Consider limiting exposure to a small portion of your income portfolio, and be prepared for substantial variations in monthly distributions.