Image Source: Pixabay
 

The YieldMax ETFs have caught investor attention with their very high-yield covered call single-stock ETFs. A recently launched ETF caught my eye and I am very curious how it will work out for investors.

The YieldMax Gold Miners Option Income Strategy ETF (GDXY) launched on May 13. This innovative ETF, as outlined in the prospectus, is set to employ a synthetic covered call strategy, a unique approach designed to provide investors with indirect exposure to the share price returns of the VanEck Gold Miners ETF (GDX) and current income from options premiums, potentially offering a new avenue for high-yield investments.

I am intrigued by covered call ETFs with commodity values as the underlying assets. Commodities like precious metals, natural gas, and crude oil don’t pay dividends. Their prices swing based on supply and demand conditions. Trader views about those conditions change quickly. I am not a trader, so I appreciate ETFs that give exposure to commodity prices and pay attractive dividends.

The VanEck Gold Miners ETF holds shares of publicly traded gold mining companies. These companies generate revenues and profits from their mining operations, but typically, the share prices swing with the price of gold. This makes sense, since a gold mining company would be more profitable if gold were to increase.

As noted above, GDXY employs a synthetic options position to mirror the returns of GDX. This strategy involves buying call options and selling put options with the same strike price. This innovative options trade is designed to match the returns of the underlying asset, in this case, GDX, offering a new and potentially lucrative investment opportunity.

The benefit of the synthetic options trade is that an investor needs a lot less capital, compared to the outright purchase of shares. In fact, GDXY has 106% of its net assets in Treasury Bills and a money market mutual fund. Call options are sold against the synthetic long position to generate cash income, producing a traditional (sort of) covered call trade.

As I write this, GDXY is preparing for its first group of short calls to expire on June 21. The fund is set to pay its initial monthly dividend around July 6-7. This upcoming event will provide us with our first glimpse at the GDXY dividend yield, sparking anticipation for the fund’s future performance.

I am intrigued by the initial cut of the GDXY holdings and curious how the fund managers’ strategy will work. It will be a few months before we see some trends.

More By This Author: