Why This Investor Trusts ULTY Even As The Market Dips – Here's My Strategy

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The YieldMax Ultra Option Income Strategy ETF (NYSEARCA:ULTY) has been making rounds on Reddit again. That jumbo yield, which tends to hover in the ballpark of 80-120%, is a major reason why. Indeed, that’s the type of yield that seems too good to be true. And while ULTY has delivered on the payout, investors have had to brace themselves for substantial capital downside. Indeed, whenever you have a falling share price but a whopping yield, you may still have quite a notable winner on your hands. Ultimately, it comes down to total returns, which is the sum of dividends paid and capital gains.

For ULTY, if you’ve got a 90-100% yield, you could still end up ahead, even if shares were to fold 30% in any given year. In any case, it’s an unorthodox, risky way to invest, for sure. That said, I think the ETF’s strategy is very interesting, especially to young investors who are willing to explore the potential in such a security that may very well represent uncharted territory for many retail investors.

ULTY is an exciting trade to say the least

Personally, I view it as an exciting ETF for traders who can get behind the very unique strategy. In my prior piece covering a Reddit user who was thinking about placing limit orders on ULTY, I encouraged the investor to be cautious. Also, I think it makes more sense to pay less attention to the chart (remember that shares of ULTY have just over a year of historical performance) and more attention to the state of the hyper-growth tech trade and the seasonal period of choppiness that could lie ahead.

Indeed, the ULTY is an actively managed ETF that aims to crank up the monthly income by writing covered calls against a wide range (more than a hundred) of stocks, most of which are high-beta hyper-growth stocks (think quantum computing, AI, and crypto-related stocks) that tend to be an absolute playground for options traders. In market environments where there’s lots of interest in small, up-and-coming hyper-growth disruptors, ULTY could stand to be quite the winning bet.

Additionally, the ULTY’s active managers will also come into play as they navigate through all sorts of market climates. If September ends up being another seasonal rough patch, it’ll be interesting to see how the ULTY fares. A market-wide downturn or correction could act as a drag on the share price. However, if September leads to volatility but the high-growth trade stays intact, ULTY could wind up a great trade. Either way, ULTY traders should hope for a choppy ride higher (like what we’ve enjoyed through the summer).

This Reddit user is looking to keep adding on dips

Some Reddit users, such as this individual, are convinced that the ULTY is worth staying the course with. Even as shares continue to fall, they’re confident that things will work out in terms of total returns. Indeed, some percentage of downside is to be expected from such a security. In any case, the individual plans to keep buying shares in weakness, given their faith in management. Indeed, active funds have quite a bit of agility and 

Indeed, the YieldMax ETFs have a reasonable expense ratio, given just how active the fund’s managers are as they seek to max out the yield for investors. While time will tell what September and October hold, I do think it’s a sound strategy to keep dollar-cost averaging (DCA) on the way down while collecting the hefty payout. Of course, investors should consider the potential downside risks if a bear-case scenario (think less volatility and less interest in more speculative high-flying stocks) were to pan out.

In any case, I do agree with the individual in that YieldMax’s active managers are good at what they do. That said, it’s a risky field to be in and investors shouldn’t overextend themselves on risk, especially if the rest of the portfolio isn’t sufficiently diversified.

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