Understanding the YieldMax S&P 500 0DTE Covered Call Strategy ETF (SDTY)

What this ETF is trying to do

The SDTY ETF is an "option income" fund. It uses a strategy called "covered calls" to try and generate cash for investors. This is different from a standard fund that just buys stocks and waits for them to go up. Instead, this fund uses specific financial tools (options) to create regular payments.

What the numbers show

It is important to understand that "price return" and "total return" are two different things.

• Price Return: This measures only the change in the share price. For SDTY, the year-to-date (YTD) price return is approximately -8.12%. The one-year price return is approximately -10.72%. This means the share price has gone down over these periods.

• Total Return: This measures the change in value including the cash distributions paid out. Even though the share price fell, the YTD total return was approximately 11.73%, and the one-year total return was approximately 16.43%.

To see how the price changed, we can look at an estimated price from roughly one year ago, which was $45.68, compared to the current price of $40.78.

Income and distribution explanation

This ETF is designed to provide frequent cash payments. The distribution yield is approximately 27.89%. This means the fund has paid out a large amount of cash relative to its price. These distributions are very frequent, occurring 53 times over the last 12 months, mostly on Wednesdays.

However, a high distribution yield can be misleading. A large payout does not guarantee that your total investment is growing, and it does not guarantee the principal (the original money you put in) will stay the same.

NAV erosion explanation

"NAV erosion" is a term used to describe when the value of the underlying assets in a fund decreases. While a falling share price does not always mean NAV erosion is happening, we use an "erosion-risk score" to track this risk.

SDTY has an erosion score of 75, which is labeled as "mild price erosion." This indicates a mild risk regarding the stability of the fund's value. There is no "severe erosion-risk flag" for this ETF.

Pros

• Provides a high distribution yield.

• Offers frequent, almost weekly-like cash distributions.

• Shows a positive total return even when the share price is down.

Cons

• The share price has experienced a decline (negative price return).

• There is a "mild" erosion-risk score.

• The fund has a limited number of holdings listed (Top Holding: FIRST AMERICAN GOVERNMENT OBLIGS X at 11.46%).

Beginner takeaway

When looking at SDTY, it is vital to look at both the share price and the total return. While the share price has dropped, the cash distributions have helped create a positive total return. Always remember that high yields come with different risks, and a falling share price is a separate measurement from the cash income you receive.