Strategy Inc. (Bloomberg: MSTR) is a highly volatile, widely followed stock – but like many popular names, it currently pays no dividend. The YieldETP+ on the Strategy 115% Covered Call Index offers a way to harness Strategy’s volatility and convert it into regular income, while still maintaining limited exposure to Strategy’s performance. It is a rules-based investment strategy designed to generate a monthly cash flow by systematically selling 1-month covered call options on Strategy Inc.
Covered call strategies are a well-established method for enhancing income in equity portfolios. The concept is simple: investors hold a stock (e.g. Strategy Inc.) and sell monthly out-of-the-money call options on that stock. The premiums collected from selling these call options create a steady income stream. Upon expiry of each call option, the outcome depends on the stock’s performance:
Rangebound: Investors benefit from both the collected premiums and limited price movement (profit or loss), if any.
Appreciation: Investors benefit from both the collected premiums and any price appreciation up to the option strike.
Decline: The collected premium provides a partial buffer against losses, though it does not offer full protection.
Income-Focused Strategy: With many stocks paying little or no dividends, covered call writing offers an alternative income source. Strategy’s high volatility means higher option premiums, boosting yield potential.
Volatility as an Asset: YieldETP+ turns volatility into a potential benefit. While it doesn’t protect against losses, the regular income from selling calls can help offset mildly falling markets. Investors are compensated for taking on short-term uncertainty.
Operational Simplicity: No options account or active trading is needed. YieldETP+ wraps a monthly call writing strategy into a simple, listed product – making it easily accessible for investors.
Capital Gains: Monthly distributions under YieldETP+ that consist of option premiums are classified as capital gains in Switzerland. (Swiss investors should consult their own tax advisor.)
Further information on the construction, functionality and collateralization of the YieldETP+ on Strategy 115% Covered Call Index can be found in the factsheet.
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