Lately, I’ve been getting more questions about a certain group of ETFs that use options based strategies to offer unusually high weekly or monthly payouts. It started when a long-time client asked me, “Have you heard of ULTY?” Out of curiosity, I mentioned it to my son, and he surprised me by saying he had bought some for himself. Turns out, it’s become widespread among retail investors with discussions on Reddit and other online investing communities.
That got me curious. Why are these funds suddenly so popular? And what exactly are they offering that’s attracting attention from both retirees and Gen Z investors?
What Are YieldMax ETFs?
YieldMax is a company that has produced a lineup of U.S.-listed ETFs that aim to deliver high monthly income using options strategies. Most of them are tied to individual large-cap U.S. stocks, like Tesla, Nvidia, or Apple, and use covered call strategies to generate cash flow. In simple terms, they earn premium income by trading away some of the upside in the underlying stock.
The big draw? Some of these funds show annualized yields north of 50%, even 100% in some cases. Those kinds of numbers naturally stand out, especially in a market where traditional income investments yield much less.
Why Is ULTY Gaining Popularity?
Jumping back to my client’s question, ULTY, the ticker for the YieldMax Ultra Option Income Strategy ETF, has been getting attention among income-focused investors. Unlike many other YieldMax funds that concentrate on a single U.S. stock, ULTY takes a broader approach, seeking monthly income from a portfolio of covered call strategies, on an underlying basket of 15 to 30 securities. This structure has led many investors to view ULTY as a more stable, lower-risk alternative within YieldMax’s ecosystem. Because it spreads exposure across multiple underlying assets instead of betting on a single stock, ULTY offers income without putting all the eggs in one basket. There is an eye-catching current yield of over 80%, with the fund’s appeal further amplified among retail investors because of its weekly payouts.
What are the Potential Risks?
While the high payouts of YieldMax ETFs may appear enticing, here’s what investors need to know about how the income is generated. There is no free-lunch in investing and there are trade-offs involved:
1. Return of Capital Can Erode NAV Over Time
Some analysts warn that much of ULTY’s distributions reflect return of capital, not real income. That means your NAV (cost basis) is being reduced over time. That erosion can eventually lead to capital depreciation if the price drops faster than payouts compensate.
2. Heavy Dependence on Implied Volatility & Directional Movement
YieldMax ETFs rely on writing covered calls on high-volatility stocks selected for their elevated implied volatility. That premium income trickles down as weekly or monthly distributions, but if the underlying stocks fall, the ETFs still suffer losses and may not gain enough from income to offset the distributions. This makes performance highly sensitive to market volatility and timing, and not necessarily suitable as a buy-and-hold investment.
3. Capped Upside, Unlimited Downside Risk
These funds limit upside exposure because they sell call options, capping gains if underlying stocks rally. But if the underlying stocks decline sharply, the strategies offer no real downside protection. Losses flow through to shareholders and may outweigh the income received. The funds could see amplified risk during a broad market downturn.
4. Unexpected Higher Taxes for Canadians
One must also be aware that many investment forums and online investing communities are based in the USA, and the tax consequences are different in Canada. Generally, the CRA classifies premium income from writing options as capital gains. However, income from US listed products including ETFs are considered foreign income, not capital gains. Therefore, investors will be taxed on the entire amount received and the US withholding tax will also be applied before you get your payout. Hence, the effective tax rate on this income is likely higher than comparable strategies that are purpose built for Canadian investors. Investors should review with their advisor, which products would qualify for the capital gains tax rate.
To Sum Up
If you’re attracted to YieldMax ETFs as a speculative income vehicle, it’s essential to fully understand the risks outlined above. For investors seeking long-term, sustainable returns, there may be more prudent income and tax efficient alternatives available. With markets reaching near-historic highs, it’s always wise to consider rebalancing your portfolio and to incorporate investment strategies that offer downside protection.