The YieldMax TSLA Option Income Strategy ETF (TSLY) will be in the spotlight this week after Tesla publishes its financial results. The fund has retreated by about 18% from its highest level this year and is hovering near its lowest point since December 4. So, is the TSLY ETF a good investment this year?
What is the TSLY ETF?
The TSLY ETF is one of the many single-stock funds that have come up in the past few years. Its goal is to expose its holders to a company and monthly dividend payouts.
Tesla does not pay a dividend since it is still in its growth phase. As such, income-focused investors allocate cash to TSLY to get some monthly payouts, which they can reinvest or use to pay bills.
Data shows that TSLY yields about 85%, much higher than most dividend companies pay. It achieves this by investing in Tesla shares and selling call options tied to the stock.
The idea behind a covered call ETF is simple in that it benefits when the stock rises and generates a monthly premium, which is then distributed to shareholders as a dividend.
A call option is a financial instrument that gives investors a right, but not the obligation, to buy an asset before an expiry. So, assume that a stock is trading at $10 and you have a call option. In this case, if it drops to $9, the call option becomes invalid since buying it in the open market is cheaper.
If the stock soars, then you benefit for buying it at a lower price. The risk, however, is where it surges and crosses the strike price. In this case, investors miss the opportunity of holding it for longer.
Tesla earnings preview
The main catalyst for the TSLT ETF this week will be the upcoming earnings scheduled on Wednesday. These numbers will provide more information about its performance and what to expect in the coming months.
Tesla’s deliveries have not been good as competition rose and demand for electric vehicles softened. It delivered 1.77 million vehicles in 2024, down from over 1.78 million a year earlier, the first time that its deliveries dropped.
The third-quarter results showed that its automotive revenue rose by 2% to $20 billion, while its energy generation storage and services jumped by 52% and 29%, respectively. Total revenue rose by 8% to $25.18 billion.
Tesla’s stock jumped after that report as the company outlined its robotaxi business and its hope for building cheaper vehicles. Investors also cheered the growth of its carbon credit business.
The 29 analysts tracked by Yahoo Finance have an average revenue estimate of $27 billion, a 7% increase from what it made in the same quarter in 2023. They also expect its annual revenue to be $100 billion, followed by $115 billion this year.
Read more: Why Tesla’s sales are expected to slow down in 2025
So, is TSLY ETF a good buy ahead of earnings?
People buy TSLY and similar funds mainly because of its substantial dividend yield. Therefore, TSLY is a good investment.
However, for investors considering the total return aspect, it makes sense to invest in TSLA instead of TSLY. History shows that TSLA always generates stronger returns than TSLY. For example, TSLA has jumped by 108% in the last 12 months, while TSLY is up by 56%.
This could change if the Tesla stock reverses this year. Having TSLY and benefiting from its monthly distributions would be ideal in such a period.
The middle ground of all this is to invest in both assets, with most of the cash being in TSLY and the rest in TSLA.
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