Unique ETF YBIT uses covered calls on Bitcoin to generate income, but returns may be unstable

Tidal’s YieldMax Bitcoin Option Income Strategy ETF (NYSEMKT: YBIT) offers a unique way to generate income from Bitcoin’s volatility. It currently pays an annual distribution rate of 41.5%, making it an income juggernaut. YBIT creates synthetic long positions in Bitcoin by writing covered calls, leveraging Bitcoin’s high volatility for higher premiums.

YBIT’s strategy involves writing covered calls on the iShares Bitcoin Trust (NASDAQ: IBIT) to generate options income. This allows the ETF to automate the covered calls process with a synthetic stake in IBIT, providing exposure to Bitcoin while earning distributions. However, YBIT’s complex options strategy may result in unstable returns in volatile markets.

Covered call strategies work best when the underlying security trades sideways, allowing for consistent income without being called away. YBIT aims to pay out distributions even if Bitcoin’s price stalls out. However, most of its distributions come from a return of capital (ROC) instead of options income, reducing its overall effectiveness.

Despite offering a high yield, YBIT’s complicated options strategy and high fees may not make it a great investment. Investors seeking exposure to Bitcoin may be better off buying the cryptocurrency directly or investing in a traditional dividend-oriented ETF. YBIT’s returns have been unstable, with a decline in shares despite Bitcoin’s price rise in the past year.

Read more at Yahoo Finance.: YBIT Is an Income Juggernaut