The YieldMax NVDA Option Income Strategy ETF, known as NVDY, has attracted attention for its impressive distribution rate of 58.38% as of December 10, 2025. However, a significant portion of this yield is returning capital rather than generating actual investment gains. Over the past year, NVDY has distributed approximately $11.91 per share, yet it experienced a 21% decline from its peak value in August, prompting questions about the sustainability of its income strategy.
The fund employs a synthetic covered call strategy, selling call options on Nvidia shares without holding the stock directly. By utilizing long-dated call options for synthetic exposure and selling shorter-term calls to collect premiums, NVDY generates income, especially during high volatility. This approach has resulted in varying distributions, such as $0.15 per share on December 12, following payments of $0.16 and $0.15 in previous weeks. In contrast, NVDY also issued payments of $0.80 on October 10 and $0.32 on November 7. The transition to weekly distributions in October 2025 from a monthly schedule has provided investors with more frequent, albeit inconsistent, income.
While NVDY boasts an appealing yield, it comes with inherent risks associated with its income generation model. The fund’s structure results in capped upside potential while allowing for full downside participation. Despite distributing approximately $11.91 per share, NVDY’s value dropped from $17.86 in August to $14.10 by December. This situation highlights the challenge of balancing attractive distributions with capital erosion.
The volatility of Nvidia’s stock significantly impacts NVDY’s performance. Nvidia saw a 20% decline from its October peak of $212 to a low of $170 in November. Consequently, while the fund can profit from higher premiums during periods of volatility, it also faces substantial risks during downturns. The fund’s beta of 2.28 indicates extreme price sensitivity, further complicating the risk-reward equation for investors.
Notably, a considerable 66.26% of NVDY’s most recent distribution was classified as a return of capital, indicating that investors are primarily receiving their own funds back rather than true investment income. Some distributions included between 95% to 100% return of capital, raising concerns about the long-term sustainability of the fund’s income strategy.
Evaluating NVDY’s income sustainability hinges on Nvidia’s continued volatility and the premiums from options trading. Nvidia maintains strong fundamentals, reporting $187 billion in trailing revenue, with 53% profit margins and a 107% return on equity. Analysts project a consensus target price of $251, suggesting a potential upside of 43% from current levels around $175. While NVDY holders do not directly benefit from Nvidia’s business performance, they are subject to fluctuations in option premium levels, which can vary significantly based on market conditions.
For investors seeking alternative strategies, the YieldMax TSLA Option Income Strategy ETF (NYSEARCA: TSLY) offers a similar approach using synthetic covered calls on Tesla stock. TSLY also generates weekly income and provides a distribution rate exceeding 60%, yet it comes with the same trade-offs of capped upside and full downside exposure.
In conclusion, while NVDY presents an attractive yield to income-focused investors, the reality is that much of this income consists of returns on capital rather than actual investment gains. As such, potential investors should weigh the risks associated with volatility and capital loss against the promise of high short-term income.
