GOOY’s 35% Yield on Google Worth Buying Into?
What Is GOOY, and Why the Excitement? The YieldMax GOOGL Option Income Strategy ETF (NYSEARCA:GOOY), launched in July 2023, is an actively managed exchange-traded fund (ETF) designed to deliver sky-high monthly income by selling call options tied to Alphabet (NASDAQ:GOOG)(NASDAQ:GOOGL). With a jaw-dropping 42.9% annualized distribution rate, GOOY has captured the attention of income-seeking investors. […] The post GOOY’s 35% Yield on Google Worth Buying Into? appeared first on 24/7 Wall St..
Active management and a 0.99% expense ratio enhance GOOY’s income potential, but single-stock focus demands careful allocation and diversification.
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What Is GOOY, and Why the Excitement?
The YieldMax GOOGL Option Income Strategy ETF (NYSEARCA:GOOY), launched in July 2023, is an actively managed exchange-traded fund (ETF) designed to deliver sky-high monthly income by selling call options tied to Alphabet (NASDAQ:GOOG)(NASDAQ:GOOGL).
With a jaw-dropping 42.9% annualized distribution rate, GOOY has captured the attention of income-seeking investors. Unlike traditional ETFs, GOOY doesn’t own Alphabet stock outright, but uses a synthetic covered call strategy, collateralized by U.S. Treasuries and cash, to generate premiums while offering capped exposure to GOOGL’s price movements.
Managed by Tidal Investments and sub-advised by ZEGA Financial, GOOY’s $123.3 million in assets reflect its niche appeal. Investors like its “insane yield” of 35.8% for portfolios craving cash flow, especially in today’s volatile market.
A Premium-Charged Engine
GOOY’s strategy hinges on Alphabet’s volatility. By selling call options on GOOGL, the fund collects premiums that fuel its hefty distributions. Its portfolio, which consists of 66.6% U.S. Treasuries and 22% cash, provides stability while enabling options plays.
The synthetic covered call caps monthly gains — often at 15% — to prioritize income, meaning investors miss out if Alphabet surges. With a 0.99% expense ratio and high turnover, GOOY thrives in choppy markets, as option premiums rise with volatility, but its $0.3978 monthly dividend, translates to a yield that outpaces most ETFs. However, these payouts often include return of capital (ROC), which can erode the fund’s net asset value (NAV).
Why Investors See Solid Fundamentals
GOOY’s strength lies in its tie to Alphabet, a tech juggernaut whose stock price has fallen almost 2% over the past year and is currently sitting around $173 per share. Yet Alphabet’s dominance in search, cloud, and AI fuels GOOY’s ability to harvest rich premiums.
The ETF’s 35% yield crushes the Financial Services sector’s top 25% average of 8.03%. Its 12-month price range of $10.89 to $17.87 per share, and current $12.07 per share price suggest undervaluation.
Because of its U.S. Treasuries backing, many investors see GOOY offering stability compared to single-stock options. In a market rattled by geopolitical risks and Federal Reserve interest rate debates, GOOY’s focus on a resilient tech giant offers a hedge against cyclical sectors like oil or defense.
The Risks: A High-Wire Act
GOOY’s allure comes with caveats. Its lofty yield often includes return of capital (ROC), shrinking NAV and threatening long-term value. Its NAV dropped 2.6% in the past year. The covered call strategy limits upside, so if Alphabet soars, GOOY lags.
Single-stock exposure also ties its fate to GOOGL, risking losses if Alphabet stumbles. The 0.99% expense ratio and high turnover erode returns, while its non-diversified holdings amplify volatility.
Market shifts, like a tech sell-off or reduced volatility from Middle East de-escalation, could slash premiums. With no long-term track record, GOOY’s sustainability is untested, and distributions aren’t guaranteed.
Advice for Investors Considering GOOY
For those drawn to GOOY’s yield, caution is paramount and investors would be wise to take the following steps when investing.
- Set a target allocation of 3% to 5% to avoid overexposure to its single-stock risk and volatility.
- Monitor dividend sustainability by tracking GOOY’s payout ratio and Alphabet’s performance, as ROC signals NAV erosion.
- Enroll in a dividend reinvestment plan (DRIP) to compound returns by reinvesting monthly payouts, but weigh NAV decline risks.
- Stay informed about Alphabet’s sector — tech and advertising — and macro factors like Fed policies or geopolitical events, which could impact premiums.
- Diversify with broader ETFs like JPMorgan Equity Premium Income ETF (NYSEARCA:JEPI) to balance GOOY’s swings.
- Check analyst updates, as GOOY’s $12 price could test its low, suggesting further downside.
A High-Reward, High-Risk Bet
GOOY is a bold play for income seekers betting on Alphabet’s volatility and tech resilience. Its fundamentals, tied to GOOGL’s strength, appeal in turbulent markets, but NAV erosion, capped gains, and single-stock risk demand vigilance.
Approach GOOY like a spicy investment: allocate sparingly, reinvest wisely, and monitor closely. For those ready to stomach the turbulence, GOOY offers juicy payouts — just don’t bet the farm on this high-wire act.
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