YieldMax launches semiconductor covered call ETF CHPY in Europe

New ETF details

YieldMax, a US-based options income specialist, has expanded its European lineup with the launch of the YieldMax Semiconductor Option Income UCITS ETF (CHPY). The fund, listed in London and domiciled in Dublin, is dollar-denominated and carries an annual management fee of 0.99%. It is the fourth actively managed exchange traded fund from YieldMax to be offered in Europe, following similar products launched since last summer.

CHPY focuses on major semiconductor stocks, including Nvidia, Broadcom, ASML, and Taiwan Semiconductor Manufacturing Company. The fund employs a variation of a covered call strategy, aiming to generate high monthly income while participating in some upside from these volatile stocks.

Strategy and mechanics

In a conventional covered call strategy, a fund sells call options on stocks it owns, receiving a premium from buyers who gain the right to purchase the stock at a predetermined strike price. If the stock rises above that strike, the fund forgoes gains beyond that level but keeps the premium. If the stock falls, the premium offsets some losses, providing a defensive buffer.

CHPY enhances this approach by also purchasing a long call option on the same stock at a higher strike price. This dual-option structure, which YieldMax calls a "credit spread" covered call strategy, aims to retain income from the short call while allowing for gains if the stock surpasses the higher strike. The strategy is designed to perform well in flat or moderately bullish markets, though it may lag in strongly rising markets due to the caps imposed by sold calls.

According to HANetf, the ETF platform distributing YieldMax funds in Europe, these ETFs aim to provide enhanced income, especially in flat or moderately bullish markets, although they may underperform in strongly rising markets as potential upside is capped by the sold calls. Some covered call ETFs mitigate this by writing calls on only a portion of the ETF's holdings, with the remaining stocks being used to capture growth.

YieldMax's other funds and context

YieldMax's other UCITS ETFs follow the same strategy and currently offer high annualized yields, though these are based on the latest monthly distribution and will vary. For instance, the YieldMax MSTRY Option Income ETF (MSTY) boasts a 45.5% distribution rate from options on US "micro-cap" stocks. The Ultra Option Income Strategy ETC (ULTY) offers a distribution rate of 43.5% from calls on a portfolio of 15-30 US stocks. The YieldMax Future of Defence Option Income fund yielded 26% at the end of February from options written on NATO country defence stocks.

David Batchelor, senior analyst at QuotedData, commented: "YieldMax Semiconductor Option Income UCITS ETF is a particularly interesting new active ETF launch that plays to two very current topics in the market. The first is the covered call element. This is the second such new launch we have covered this week, after JPMorgan Equity Premium Income, that is offering active exposure to an underlying asset, but exchanging some of the potential upside for an income stream and some lessening of the volatility. This covered call strategy is the most common way to use options in the active ETF market. The second interesting topic is that this is a thematic launch, which should prove significantly more actively managed, with very different returns to any benchmark, than the 'index plus' launches we see. Up to now such thematic funds have tended to remain small, so it will be interesting to see what happens here, particularly with HANetf providing the white label service."

What it means for income investors

This launch reflects a growing trend of actively managed ETFs using options to generate income from thematic sectors like semiconductors. For income-focused investors, CHPY offers a way to tap into high-yield potential from a volatile sector, but the strategy's capped upside and reliance on options premiums mean returns may vary significantly from the underlying stocks' performance.

Reporting based on: QuotedData. Figures verified against market data where available.