I Just Bought MSTY Shares at $20.75 – Here’s My Investment Strategy

The YieldMax MSTR Option Income Strategy ETF (NYSEARCA:MSTY) has captured significant attention among investors seeking high-yield income through its synthetic covered call strategy tied to Strategy (NASDAQ:MSTR) stock. 

A recent Redditor’s post on the r/YieldMaxETFs subreddit from illustrates the sentiment around MSTY, where he shared he bought $10,000 worth of MSTY at $20.75 per share. Although he was anticipating the stock price would drop below $20, instead Bitcoin‘s (CRYPTO:BTC) race high has pushed Strategy’s stock up quite a bit. While the Redditor would have bought more had it dropped under $20 a share, he is still happy to get in where I did and plans to average down while reinvesting the distributions, 

This strategy reflects a pragmatic approach to entering MSTY stock above a desired threshold. It leverages its high dividend yield — often exceeding 100% on an annualized basis — to offset entry price concerns. However, buying MSTY above $20 also requires a careful strategy to balance its income potential against risks like price volatility and NAV erosion.

Tradeoffs for Accepting the High Yield

MSTY’s appeal lies in its ability to generate substantial monthly income by selling covered calls on MSTR, a company heavily invested in Bitcoin, while holding U.S. Treasuries as collateral. Its yield stems from volatile option premiums. 

Yet, this income comes with trade-offs: MSTY’s share price has fallen 30% over the past year, and its NAV dropped 2.6% in the last month, reflecting the risk of capital erosion as distributions reduce the fund’s value. 

The Redditor’s purchase at $20.75, just above their $20 target, aligns with MSTY’s recent trading range ($17.10 to $46.50 per share over the past 52 weeks), but its proximity to the short-term moving average support of $20.95 suggests a cautious entry. 

The decision to buy despite missing the preferred sub-$20 target highlights confidence in MSTY’s income stream, especially as MSTR’s Bitcoin-driven volatility fuels option income.

An Action Plan to Thwart Volatility

Investors considering MSTY above $20 should adopt actionable strategies to manage risks and optimize returns. 

First, set a target price for averaging down, such as $18 to $19 per share, to lower your cost basis if MSTY dips, as it did to $17 last April. This approach, echoed by the Redditor’s plan to average down, mitigates the impact of price declines while capitalizing on distributions. 

Monitor MSTY’s earnings reports and broader market conditions, particularly Bitcoin and MSTR performance, as these directly influence MSTY’s option income and share price. Bitcoin’s volatility could drive MSTY toward $40 if bullish trends persist, but a weakening MSTR (down 400% in historic runs) could exacerbate declines.

Diversification is critical to mitigate MSTY’s risks. Its high yield is attractive, but its correlation to MSTR and Bitcoin makes it volatile. Balance your portfolio with stable sectors like utilities or consumer staples, which perform well during market uncertainty, to offset potential MSTY losses. 

Dollar-cost averaging (DCA) is another prudent strategy, as the Redditor’s “dripping” approach suggests. By investing fixed amounts regularly — say, $2,000 monthly — you reduce exposure to sudden drops, unlike lump-sum purchases at $20.75. 

Reinvesting distributions, as the Redditor plans, can compound shares over time, especially with MSTY’s $38.37 in distributions over 15 payments for early investors.

Key Takeaways

MSTY’s structure poses challenges. Its synthetic covered call strategy caps upside gains if MSTR surges, and short put positions expose investors to full downside risk. MSTY’s U.S. Treasuries collateral absorbs losses from the fund’s exposure to MicroStrategy and Bitcoin volatility, but potentially shrinks its value unless distributions are reinvested. 

For investors like the Redditor, buying MSTY at $20.75 reflects a calculated risk, banking on high yields to offset capital losses. To succeed, diversify to hedge volatility and use DCA to build positions gradually. 

While MSTY’s income potential is compelling, its volatility demands discipline. Monitor MSTR and Bitcoin trends, set clear price targets, and balance with stable assets to navigate its risks and rewards effectively.

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