Summary I am downgrading MSTY to HOLD as Bitcoin and MSTR have entered a consolidation phase, reducing implied volatility and option income potential. MSTY's dividend yield has dropped significantly and now sits below its historical average. Technical indicators like narrowing Bollinger Bands and neutral RSI readings suggest subdued volatility for both Bitcoin and MSTR stock. Unless macro or regulatory shocks reignite volatility, I expect MSTY’s yield to remain below average. MSTY ETF: Previous Thesis and New Developments I published my last article on Yieldmax MSTR Option Income Strategy ETF (NYSEARCA: MSTY ) on February 27, 2025. In this piece, titled "MSTY Is A Buy Due To Peak Yield And Implied Volatility." I recommended a buy rating after considering the implied volatility of the MSTR stock underlying the ETF. Quote: I recommend a buy rating for YieldMax MSTR Option Income Strategy ETF due to its current 160%+ dividend yield and high implied volatility of MSTR stock. Both readings are near peak levels since the fund 's inception, adding up to a very skewed reward/risk curve. Looking ahead, I see Bitcoin price to display large volatility due to a mix of ongoing catalysts. This should keep MSTR IV at elevated levels and help to sustain MSTY 's high yield. Seeking Alpha Since that time, there have been a few developments evolving around this ETF that have materially changed my assessment. In the remainder of this article, I will elaborate on the top 2 on my list A) the latest technical trading patterns of Bitcoin (BTC-USD) and Strategy (MSTR) stock, and B) the dividend yield decrease. My conclusion from this reexamination is twofold. First, I believe MSTY's underlying assets have entered a consolidation phase since my last writing, which would in turn lead to quieter volatility. Second, I also expect the subdued volatility to be unfavorable for MSTY's option pricing. As such, my view is that the reward/risk ratio of this ETF has become materially less attractive than the time of my last writing, leading me to downgrade its rating to HOLD. MSTY ETF: Basic Facts A quick introduction of MSTY is helpful for readers new to the fund. MSTY ETF is issued by Toroso Investments Topco LLC and was incepted in February 2024, as you can see from the following chart. The funds generate high yield (about 133% as of this writing) via the use of covered calls on its underlying asset – the MSTR stock. As part of its strategy, the fund also uses cash and US Treasurys as collaterals as detailed in its fund's description below: MSTY fund description: MSTY aims to generate monthly income while providing exposure to the price returns of MicroStrategy stock, subject to a cap on potential gains. The fund utilizes a synthetic covered call strategy via standardized exchange-traded and FLEX options, which consists of three elements: i) synthetic long exposure, ii) covered call writing, and iii) US Treasurys for collateral. The synthetic long exposure seeks to replicate the price movements of MSTR by purchasing and selling at-the-money calls and puts that have one- to six-month terms. To generate income, the fund writes call options with an expiration of one month or less and a strike price of approximately 0%-15% above MSTR's current share price. The fund operates with an expense ratio of 0.99% and an AUM of $4.91 billion. As such, the fund offers a quite competitive combination of costs and liquidity when compared to similar ETFs. For instance, the table below shows two primary competing ETFs for MSTY: MST and IMST. As seen, they feature a higher expense ratio and/or much smaller AUM in comparison. With this background, next I will continue explaining why I see good reasons for the high yield to persist in the near future. Source: ETF.com Bitcoin and MSTR Show Signs of Consolidation Looking at the latest BTC-USD trading chart, as shown below, I am seeing several technical indicators suggesting a period of consolidation. To start, the Bollinger Bands have been narrowing significantly since my last writing, indicating a decrease in volatility and often preceding a sideways price movement in my experience. As seen, the current lower Bollinger Band is around 101,409 level and the upper band is around 110,657 level, translating into bandwidth of around 9,248. This is only a fraction of the bandwidth observed at my last writing (of almost 40,000). As another crucial technical signal, the Relative Strength Index [RSI] has also moved into a neutral range since my last writing. The RSI reading is currently at approximately 52, a neutral position that further reinforces the idea that there's no strong momentum in either direction for Bitcoin. Given the close relationship between Bitcoin and MSTR stock, MSTR's trading chart (see the second figure below) exhibits almost identical trends. Here, the width of the Bollinger Bands has also narrowed substantially since my last writing and the RSI has been hovering around the neutral level since June also. StockCharts StockCharts MSTY ETF: Dividend Yield MSTY's dividend yield has also become far less attractive than the time of my last writing due to the changes in its prices and also payouts. To wit, at the time of my publication, MSTY was priced at $20.92, and the fund was yielding about 161% at that time. It has experienced a moderate 2.37% price gain since then, if you recall from the first chart. But the ETF has delivered a total return of 38.74% thanks to its generous payouts, significantly outperforming the S&P 500's change of 3.20% over the same period. The above price changes, when combined with the changes in payouts, have resulted in a noticeable decrease in its yield. Currently, its dividend yield stands at 134%. It is of course extremely high in absolute terms. However, it is not as attractive when contextualized properly. For example, the next chart shows the historical levels of its yield. Since its inception in 2024, the fund's yield started to stabilize in early 2025. Since then, MSTY's dividend yield has reached a high of 193%, the average dividend yield for MSTY has been approximately 159%, and the lowest dividend yield was approximately 121% as seen. The current yield is thus not only noticeably lower than that at my last writing, but also lower than its historical average by a sizable margin. Seeking Alpha Other Risks and Final Thoughts Looking ahead, I expected the relatively low dividend yield to continue, given my above judgment of the consolidation of Bitcoin and also MSTR stock. As mentioned in the forgoing sections, I expect such a consolidation phase to keep the implied volatility of MSTY's underlying assets at muted levels, thus creating an unfavorable pricing environment for MSTR's option strategy. In terms of downside risks to my above thesis, the top 2 in my mind are macroeconomic conditions (in particular interest rate policy) and also regulatory developments. If central banks, particularly the U.S. Federal Reserve, signal or implement change to their interest rate hikes – in either direction, such changes could change the flow of capital into cryptocurrencies and heighten their volatility. These changes can in turn cause high volatility for MSTR stock and boost MSTY's income generation. In terms of regulatory risks, the cryptocurrency landscape is still evolving. Any sudden or significant regulatory shifts, whether positive or negative, could also cause large price swings and heightened volatility. All told, this article on MSTY is motivated largely by two changes since my last writing: the latest technical signals for bitcoin/MSTR stock and MSTY's dividend yield change. After examining these changes, I see an overall neutral reward/risk curve under current conditions. In particular, the yield is relatively low by historical standard, and I see large odds for this level of yield to persist given my analysis of the trading patterns for Bitcoin and MSTR stock. These considerations have led me to adjust my rating on MSTY to hold.
