Investors who like their tech stocks stabilized and with an extra shot of income are in luck.

ZEGA Financial has launched yet another two new funds to its already bulging portfolio of tech-focused covered call ETFs.  

This time the asset manager is deploying its synthetic covered call strategy on Microsoft and Disney stocks. The YieldMax MSFT Option Income Strategy ETF (MSFO) and YieldMax DIS Option Income Strategy ETF (DISO) were launched on the New York Stock Exchange Arca on August 24. The funds will sell/write call options on their target tech stocks to deliver monthly income to holders. The funds do not invest directly in either Microsoft or Disney.

It has been a busy summer for ZEGA as it maximizes its YieldMax offerings. This month alone, it floated an option income ETF targeting Coinbase and then another tracking Netflix.

In July, it kickstarted the YieldMax META Option Income Strategy ETF (FBY), YieldMax GOOGL Option Income Strategy ETF (GOOY), and YieldMax AMZN Option Income Strategy ETF (AMZY), which sell/write call options on Meta, Alphabet and Amazon stock, respectively.

This derivative-based ETF drive aims to attract investors who want the potential huge upside of Silicon Valley’s behemoths but want to maintain a defensive position. ZEGA’s wrapped, leveraged products try to combine both steady income and capital appreciation in one so that investors don’t need to choose between dividend and growth stocks but can try to strike a balance in a one-click solution.

However, buyers should note the ETF only offers “capped participation” in the price gains of its target stock. Each fund’s performance depends on its target stock’s price action, and investors may experience significant losses.

Cover This Trend 

YieldMax funds are quite on-trend. Due to the peculiarities of this year’s stop-start market recovery, defensive strategies are having a moment. 

Although 2023’s mood music is decidedly more upbeat, the bull market party still feels fairly frigid. The broad-based market S&P 500 index may have gained 20% from its nadir in October last year, but investors are not throwing caution to the wind just yet. 

Investors are instead covering their backs by stacking up big time on covered call funds in the vein of YieldMax. The JPMorgan Equity Premium Income ETF (JEPI) – already the largest US-listed covered call ETF – has ballooned by almost $10 billion year-to-date. It not only sucked in the most capital of any active ETF in 2023 but now holds the title of the largest active investing product. 

As long as investors stay sheepish – one foot on the dance floor, two eyes on the exits – they may keep reaching for more covered-call offerings to beat back market jitters.

Microsoft is currently trading for around $330, while Disney is wapping hands near $85. MSFO and DISO are trading at around the $20.50 mark. Both funds have an expense ratio of 99 basis points.

Previously posted at Wealth of Geeks.

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