I Just Bought NVDY at $16. Here’s My Strategy for Gains

Like many investors, I am bullish about NVIDIA (NASDAQ:NVDA) because the company is a clear winner among U.S.-based artificial intelligence (AI) hardware suppliers. However, as a passive income collector, I’m not a big fan of NVIDIA’s paltry 0.03% forward annual dividend yield.

I like to use exchange traded funds (ETFs) to generate more yield than individual stocks, and nowadays there are plenty of passive income ETFs to choose from. For NVDA stock bulls in particular, there’s the YieldMax NVDA Option Income Strategy ETF (NYSEARCA:NVDY). I just bought NVDY shares at a good price, and right now I’m going to reveal my strategy for maximum gains in 2025.

How NVDY Generates a 55% Annual Yield

While the YieldMax NVDA Option Income Strategy ETF offers indirect exposure to NVDA stock, that’s not the main attraction. What really captures people’s attention is NVDY’s eye-popping 55.19% annual distribution rate, which easily beats NVIDIA stock’s 0.03% annual yield.

Holders of the YieldMax NVDA Option Income Strategy ETF will have annual expenses of 1.27% automatically deducted from the share price. Nevertheless, the fund’s gigantic distribution yield compelled me to grab a handful of NVDY shares.

In a nutshell, here’s how the fund works. The YieldMax NVDA Option Income Strategy ETF generates some of its income by investing in U.S Treasury bonds. In addition, NVDY uses options to synthetically replicate owning NVDA shares, and then sells covered calls to collect more income.

It’s fine if you’re not familiar with the ins and outs of option strategies. Just be aware that, because the YieldMax NVDA Option Income Strategy ETF sells covered calls, this will generate substantial income but will also limit the share price’s potential upside.

And to be completely honest, the share-price performance of the YieldMax NVDA Option Income Strategy ETF hasn’t been great. Even though NVIDIA stock has increased substantially over time, the same thing can’t be said about the NVDY ETF.

A Strategy to Maximize Gains With NVDY

I can’t guarantee that this plan will work, but I’ve had success in the past with ETF distribution reinvestment strategies. Every time I receive a cash payment in my account, I immediately use that cash to purchase more shares of the ETF.

Recently, I bought shares of the YieldMax NVDA Option Income Strategy ETF at around $16. The fund pays out its cash distributions each and every month. Will I be worried if the share price falls slightly? The answer is no.

The next time NVDY pays a distribution, I’ll buy more shares of the fund. If the YieldMax NVDA Option Income Strategy ETF happens to trade at a slightly lower price, this means I’ll get to buy the shares at a discount. It could also mean that I’ll get to buy more shares. 

Over time, I expect to have more and more shares because I’ll be using the cash distributions to purchase additional shares of NVDY. If the YieldMax NVDA Option Income Strategy ETF maintains its high annual yield and the share price doesn’t collapse too much, I should be able to boost my profit potential.

Having an Exit Plan Is Crucial

It’s not all about maximizing my profit potential, though. The number-one consideration is mitigating risk, especially with a high-powered fund like the YieldMax NVDA Option Income Strategy ETF.

Relative to my overall portfolio size, I only bought a small number of NVDY shares at $16. Reasonable position sizing is my favorite way to de-risk any investment strategy.

However, I’m also applying the crucial strategy of having an exit plan with the YieldMax NVDA Option Income Strategy ETF. Going forward, I will carefully monitor the NVDY share price; I expect to it decline moderately but hope it won’t collapse too much.

If the YieldMax NVDA Option Income Strategy ETF share price falls by more than 15% in a month at any time in 2025, I expect to bail on the position. The 55% annual distribution yield is great, but I don’t want to get chopped up by massive share-price erosion. 

Hope for Profits, Prepare for Losses

Ultimately, I’m applying the Warren Buffett principle of “Don’t lose money” as the first rule of investing. The YieldMax NVDA Option Income Strategy ETF isn’t one of those ultra-passive “set it and forget it” funds. It’s wise to watch NVDY closely and avoid getting emotionally attached to it.

Meanwhile, I’m happy to collect and reinvest those sizable monthly cash payments. Hopefully, my investment in the YieldMax NVDA Option Income Strategy ETF at $16 will enhance my wealth-building strategy — but if not, then I’m fully prepared to sell my shares and cut my losses.

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