NVDY ETF Caps NVIDIA Gains in Strong Months

According to a report from 24/7 Wall St., the YieldMax NVDA Option Income Strategy ETF (NVDY) employs a covered call strategy on NVIDIA (NVDA) shares, selling monthly upside in exchange for option premiums distributed as income. This results in a headline distribution yield north of 50%, but it limits capital appreciation.

Recommendation Change

This is not a rating change but an analysis of the fund's structure. NVDY sells covered calls on NVDA each month, capping the maximum gain investors can achieve in months when the stock rallies sharply.

Analyst Rationale

The strategy works as designed: selling upside for high distribution income. However, in months like January 2024 when NVIDIA rose 24%, NVDY holders kept only about half of that gain while receiving distributions. The biggest risk is that the strategy works perfectly at the worst moment—when a sustained rally occurs.

Context

NVDY is one of several YieldMax funds that sell options on single stocks. Its performance depends on NVDA volatility; in bearish or sideways markets, its distributions may outperform the total return of the underlying stock. But in strong bull markets, it lags the underlying.

What to Make of It

Investors in NVDY should understand that the high yield comes at the cost of full participation in NVIDIA's upside. The fund suits those seeking high income and willing to forgo some capital gains, but it is not a substitute for holding NVDA directly during periods of strong growth.