Passive income investors might be disappointed to learn that Tesla (NASDAQ:TSLA | TSLA Price Prediction) doesn’t offer a dividend. Yet, there’s an exchange traded fund (ETF) called the YieldMax TSLA Option Income Strategy ETF (NYSEARCA:TSLY) which offers dividend-like income on a very large scale.
Tesla stock has the potential to make a big move in the second half of 2025. Can the YieldMax TSLA Option Income Strategy ETF capitalize on a potential TSLA stock surge? Or will TSLY’s shareholders be disappointed by the fund’s performance?
These are the million-dollar questions as legions of income seekers take their chances with the YieldMax TSLA Option Income Strategy ETF. It’s a bold fund with a gigantic yield, but just be careful as there are no guaranteed outcomes with the TSLY ETF.
A Complex Strategy for Huge Yield
There’s no denying it. The main reason people invest in the YieldMax TSLA Option Income Strategy ETF is for its jaw-dropping 60.68% annualized distribution rate (which is similar to a forward annual dividend yield).
Please note that there are annual fund operating expenses totaling 1.04%, which will automatically be deducted from the TSLY share price. Nevertheless, the fund’s enormous yield might make it difficult to resist buying the YieldMax TSLA Option Income Strategy ETF.
Not only that, but the TSLY ETF pays out its distributions on a monthly basis instead of using the typical quarterly payment schedule. This makes the YieldMax TSLA Option Income Strategy ETF even more enticing for income collectors.
Now, you might wonder how this found could possibly feature a 60.68% annual distribution rate. First of all, the YieldMax TSLA Option Income Strategy ETF holds U.S. Treasury bonds; these bonds can serve as collateral for the fund while also generating some income.
However, most of the income derived from the YieldMax TSLA Option Income Strategy ETF comes from options trading strategies. Although the TSLY ETF doesn’t directly hold Tesla stock shares, it uses synthetic option strategies to replicate TSLA stock ownership.
Then, the YieldMax TSLA Option Income Strategy ETF writes (i.e., sells) covered calls to generate income, and this enables TSLY’s high annual yield. Investors don’t have to understand every nuance of this strategy as they can just let YieldMax manage the fund.
What Could Possibly Go Wrong?
Right now, you might think that the YieldMax TSLA Option Income Strategy ETF will turbocharge your portfolio and nothing could possibly go wrong. Be aware, though, that there are risks associated with the TSLY ETF.
To begin with, there’s no assurance that the YieldMax TSLA Option Income Strategy ETF will maintain its 60.68% distribution rate in the future. If Tesla stock declines sharply, the TSLY ETF could fall fast and the fund might end up reducing its monthly distributions.
Furthermore, bear in mind that the YieldMax TSLA Option Income Strategy ETF uses a covered call writing strategy. Consequently, the fund’s investors may be disappointed if Tesla stock shoots to the moon.
In other words, TSLY’s share-price upside potential is limited by its income-generating strategies. If TSLA stock rallies sharply, the share price of the YieldMax TSLA Option Income Strategy ETF might only rise slightly.
These risks, along with the fund’s operating expenses, help to account for the TSLY ETF’s less-than-stellar past share-price performance. Prospective investors should weigh these issues against the benefits (huge yield, monthly payouts) of the YieldMax TSLA Option Income Strategy ETF.
Additionally, if you’re not generally optimistic about the electric vehicle market and Tesla’s future growth prospects, you probably shouldn’t invest in the YieldMax TSLA Option Income Strategy ETF. While TSLY doesn’t directly hold TSLA stock, its share price and distribution yield will likely depend on Tesla’s ability to grow and profit.
A Safety-First Approach With TSLY
There are notable risks involved, but this doesn’t mean you have to completely avoid the YieldMax TSLA Option Income Strategy ETF. Just be sure to exercise caution and follow some common-sense guidelines.
For one thing, it will be crucial to maintain a small position size with the TSLY ETF. Due to its risks, this fund should only constitute a small percentage of your portfolio if you choose to buy shares.
Next, consider diversifying your portfolio with a broad-market fund such as the JPMorgan Equity Premium Income ETF (NYSEARCA:JEPI). This approach should help to cushion the blow if the YieldMax TSLA Option Income Strategy ETF loses significant value.
Finally, be sure to monitor your TSLY share position carefully and have an exit plan in place. You can enjoy the the YieldMax TSLA Option Income Strategy ETF’s hefty cash distributions, but if you’re losing money overall, it’s fine to cut your losses and move on.
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