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The Tesla, Inc. (TSLA) share price has been on a wild ride through the first half of 2024. The stock’s volatility gives us an opportunity to see how the new breed of single-stock, covered call ETFs perform under extreme market conditions.

TSLA opened 2024 at $250.08 per share. The stock proceeded to fall like a proverbial rock. At its low in April, it traded for $138.80—a 44.8% decline in just over three months. The share price recovery was as dramatic as the decline. On July 5, the TSLA share price crossed back above $250.00, and the stock is currently trading close to $270.00.

For a comparative reference, let’s consider the end-of-June closing price of $197.88.

The YieldMax TSLA Option Income Strategy ETF (TSLY) is a high-yield fund that uses covered call options trading to generate income and pay monthly dividends. The YieldMax website quotes a current eye-popping distribution yield of 69.77%. While the yield is variable, TSLY has consistently paid above 50%.

A covered call strategy involves selling call options backed by the underlying stock. As the TSLY dividend indicates, covered call trading can generate significant cash flow. The strategy caps upside share price appreciation but will also capture all price declines. TSLA’s extreme drop during the first three months of the year forced a one-for-two reverse stock split by TSLY.

The question is, how did TSLY perform during TSLA’s extreme moves during the first half of the year? Did the restrictions on covered calls result in underperformance? Let’s compare some numbers.

The YieldMax website has return numbers through the end of June, so we will compare TSLA and TSLY over the year’s first six months.

For the half year, TSLY returned a negative 10.74%.

As noted above, TSLA was still in negative territory at the end of June, and the stock was down 20.88%.

TSLY outperformed by a significant number.

Of course, if you invest in an ETF with a 70% yield, you hope to take home most of that yield as gains. YieldMax and the Kurv ETFs offer single-stock covered call ETFs on more than 20 popular, large-cap stocks. You need to pick the funds with the most stable underlying share prices to benefit from the high distribution yields. For example, the YieldMax fund on NVIDIA Corp, ETF symbol NVDY, returned over 90% for the first half of 2024. I highlighted the TSLA situation to show that the YieldMax strategy can provide relatively attractive returns even in extreme market conditions.

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