I Almost Fell for a ~70% Yield ETF… Here’s What I Learned About YieldMax

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I’ll admit it.

I saw an ETF paying ~70%+ yield…
And for a second I thought:

“Wait… is this free money?”

It wasn’t.

And if you don’t understand how these strategies work, they can quietly drain your portfolio while making you feel like you’re winning.

🧠 What Are YieldMax ETFs?

YieldMax ETFs (like NVDY, QDTY, SDTY) are designed to generate very high income — often paid weekly or monthly.

Sounds great.

But here’s the twist:

They don’t actually own the stocks you think they do.

🧩 The Strategy (Simplified)

These funds use what’s called a:

Synthetic covered call strategy (similar in concept to what traders call a “poor man’s covered call”)

But the details matter — a lot.

🪄 First: What’s a “Poor Man’s Covered Call” (PMCC)?

This is what individual traders do.

Instead of buying 100 shares of a stock (expensive), you:

1. Buy a LEAP call (long-term option, 1–2 years out)
2. Sell short-term calls against it

👉 Lower capital
👉 Still generate income

It’s basically a DIY version of a covered call, using options instead of shares.

🏦 Now: What YieldMax Does (Different Game)

YieldMax ETFs do not simply use a LEAP like a PMCC.

Instead they:

• hold cash and/or Treasury bills (T-bills)
• use options to create synthetic exposure to the stock
• sell call options to generate income

👉 No shares
👉 No simple LEAP
👉 More complex system

⚙️ So Where Does the Income Come From?

Two places:

• 💰 Option premiums (main source)
• 🏦 Treasury yield (small bonus)

They sell calls on their synthetic positions and collect premium — that’s what gets paid out to investors.

🔥 The ~70% Yield Everyone Is Talking About (NVDY)

One ETF that kept popping up:

NVDY — the YieldMax NVDA Option Income Strategy ETF

And yes… the numbers are real.

• Yield: ~70%+
• Paid: weekly
• Based on: past distributions

At times it’s been reported around ~40–72% yield.

Naturally I had to understand how that’s even possible.

💡 Why The Yield Is So High

Nvidia is extremely volatile.

Volatility = expensive options
Expensive options = larger premiums

So NVDY:

• sells those options
• collects premium
• distributes it as income

👉 That’s the engine behind the yield

⚠️ But Here’s What You Give Up

To generate that income, the fund sacrifices a few things:

📉 1. Capped Upside

If NVDA explodes higher:

👉 gains are limited

Because they already sold calls

🚫 2. No Real Ownership

You don’t actually own NVDA.

So:

• no dividends
• no full upside
• no long-term compounding

💀 3. The Big One: NAV Erosion (Net Asset Value)

This is the part most people miss.

If the fund doesn’t generate enough real income…

👉 it can return your own money to maintain payouts

🤯 Wait… They Might Be Paying You With Your Own Money?

This confused me too.

So let’s make it simple.

🛁 Imagine This

You invest: $10,000

Every month, you receive: $500

Feels amazing.

But what if the fund is only actually earning:

👉 $150/month

📉 What’s Really Happening

Each month:

• $150 = real income
• $350 = your own money

So over time:

• your payouts feel great
• but your investment slowly shrinks

🧠 The Simple Truth

If a fund pays you more than it earns, the difference comes from your principal.

🏦 So What’s The Role of Cash & Treasuries?

This part is key.

The fund holds cash/T-bills mainly to:

👉 act as collateral

Meaning:

• it backs the options they sell
• it absorbs losses if trades go wrong

It also earns a small yield…

But:

it’s NOT the source of the huge payouts

⚖️ PMCC vs YieldMax (The Real Difference)

Here’s the clean comparison:

PMCC (you):

• uses a LEAP as stock replacement
• you control everything
• goal = optimize returns

YieldMax (ETF):

• uses collateral + options system
• fully managed
• goal = maximize income payouts

🧠 The “Aha” Difference

PMCC is a strategy to grow and generate income (but with more complexity and risk than traditional covered calls)
YieldMax is a product designed to distribute income and maximize payouts — even if that means returning capital when income falls short

🧘‍♀️ My Personal Take

These ETFs are fascinating.

But they’re not what they seem at first glance.

They’re not:

“high growth + high income”

They’re closer to:

“high income… with trade-offs most people don’t see”

🎯 Who These Might Be For

• income-focused investors who prioritize cash flow, even if it may come at the expense of NAV over time
• people who want regular, predictable payouts
• those not focused on long-term growth

🚫 Who They’re NOT For

If your goal is:

• grow your portfolio
• compound wealth
• maximize upside

👉 this is likely the wrong tool

Final Thought

There’s no shortcut.

You can:

• chase high yield
• or build real wealth

But they’re rarely the same strategy.

Disclaimer:
This article is for educational and informational purposes only. It is not financial advice, nor a recommendation to buy/sell any securities. Always conduct your own research and consult a licensed financial advisor before making investment decisions.