If you’re yield hungry and comfortable exploring the potential with compelling new ETF products, it’s tough not to feel tempted to buy the dip in the YieldMax Ultra Option Income Strategy ETF (NYSEARCA:ULTY). The ULTY has a sky-high yield (currently hovering around 85%), but with shares dipping from $20 per share to $6 and change, it’s not a name who are easily startled out of positions based on daily moves in the market. Indeed, with the ULTY, which uses a covered call strategy against some of the market’s most volatile stocks, volatility in share price and yield is pretty much a guarantee.
Indeed, a high level of volatility and downside momentum could make limit orders a smart way to add to one’s position. That said, if you’re keen on placing a bet that would be standing pat, doing nothing but eroding value at the hands of inflation, I’d be more inclined to place a market order than a limit order, especially since timing the markets over the short-term is not a game that prudent long-term income investors should play.
In this piece, we’ll look at the case of an individual who’s wondering if it makes sense to submit a limit order at $6.00 (today, ULTY shares are going for $6 and change per share) or place a limit order at a much lower price.
This Reddit user wonders if lowering one’s limit order could be a wise move
Given how things have been for ULTY shares, it seems like lowering the bar on a limit order is a smart bet.
Sure, you could get a much lower price of admission shortly if a $5 (or less) limit order succeeds, but if shares don’t move towards the mark anytime soon, you’re not going to be paid to wait. For most stocks with yields well below 3%, that wouldn’t be such a big deal. That said, we’re talking about a YieldMax ETF with a profoundly high 85% yield that stands to compensate investors as they stay aboard a ride that’s been lower since the ULTY landed on public markets just last year.
In any case, if ULTY shares aren’t headed to or below the $6 per-share mark in short order, you may not be all too happy with the timing of your entry. As such, I wouldn’t waste too much time pondering which limit orders to buy unless, of course, you’re a seasoned trader who’s well-versed in timing the next moves of a complicated premium income ETF over the near term. Instead, I’d focus on how much one would want to put in a choppy yield-heavy ETF like ULTY. As always, chatting with a financial advisor and asking them how such an aggressive yield heavyweight fits into a diversified portfolio is the best move.
At the end of the day, predicting the next move of any security over the near term, even one that only seems to know how to go down, isn’t the best idea. When it comes to ULTY and other yield-heavy securities, it’s more about the yield than the share price.
The road ahead for the volatility plays
As we head into volatility season (September is typically a very choppy month), I think submitting a market order in shares of ULTY could be a better idea than trying one’s luck with limit orders at arbitrary prices. Indeed, as volatility rises, demand (and premiums) for calls stand to rise, as I’ve noted in prior pieces. As such, seasonal traders may wish to be patient and simplify things, especially if one is looking for a way to benefit from rising volatility and appetite for some of the market’s hottest and choppiest high-flyers.
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