Uncover the hidden dangers of the MSTY ETF, from capped upside on MSTR stock to declining volatility and return of capital pitfalls. Learn why relying on MSTY for income could lead to financial losses.
Timestamped Overview
[00:00:00 - 00:08:14] Understanding MSTY Risks for Beginners
- MSTY is like betting on a stock (MSTR) by selling “options” – promises to sell the stock at a set price – to earn extra money, but this limits how much profit you can make if the stock rises a lot.
- It’s risky because you keep all the losses if the stock price drops, but give away big gains if it surges, like missing out on a jackpot while still paying for the ticket.
- The “income” from MSTY often includes returning your own money back to you, which can mess up your taxes later by lowering what you originally paid for the shares.
- As the stock becomes less unpredictable (lower volatility), the extra money from options shrinks, making MSTY less rewarding over time.
- MSTY also earns a bit from safe investments like US Treasuries, but the fund charges high fees (almost 1%), eating into your returns.
Notable Quotes
MSTY Strategy
It's writing covered calls on MSTR as the underlying stock. Basically, to write covered calls on mstr, you'd buy mstr... And then what you do is you sell out of the money calls against that long stock position.
Matthew Kratter @mattkratter
Upside Risks
Covered calls may make sense for a volatile stock because you're essentially monetizing a stock's volatility but in exchange for giving away your upside in the stock.
Matthew Kratter @mattkratter
Declining Volatility
MSTR's historical volatility has been declining. Lower historical volatility usually leads to the options market pricing in implied volatility going lower in the future. Lower implied volatility means lower options premiums.
Matthew Kratter @mattkratter
Return of Capital
Since inception, 55% of all distributions have been returns of capital rather than yield produced by the fund's option strategy. Now, return of capital. That just means getting your own money back.
Matthew Kratter @mattkratter
Tax Implications
Return of capital is used to reduce your cost basis in a stock... you'd be paying capital gains taxes on that entire amount... which is a really dumb thing to have to do since $2 of that was just the company returning your initial investment to you.
Matthew Kratter @mattkratter
Downside Exposure
The fund strategy will capture only a portion of potential gains if MSTR shares increase in value. The fund strategy is subject to all potential losses if MSTR shares decrease in value.
Matthew Kratter @mattkratter
Conclusion on MSTY
People who sell their BTC for MSTY are a lot like that guy who sold his birthright for a mess of pottage. One of the worst trades ever.
Matthew Kratter @mattkratter
X Posts
Do you think that this guy is into MSTY these days? pic.twitter.com/7seYQiMMLR
— Matthew R. Kratter (@mattkratter) July 22, 2025