- The MSTR stock price has slumped to its lowest level since 2024.
- The MSTY ETF stock has had a total return of minus 40% this year.
- History shows that top covered call ETFs always underperform the core asset.
The MSTR stock price continued its freefall this week, reaching its lowest level since 2024 as Bitcoin dropped and as concerns about its balance sheet increased. It has slumped by 85% from its November 2024 high. So, with Strategy shares falling, is the 66% yielding MSTY ETF a better alternative?
Why the MSTR Stock is Falling
Broadly, there are three main reasons why the MSTR share price is in a freefall this year. First, the retreat is due to the ongoing Bitcoin crash, as the price has moved from a record high of $126,300 to $59,000 today. BTC has fallen due to weak demand in the spot ETF and futures markets, as investors have rotated into the booming stock market.
Second, Strategy stock has slumped over the past few months due to the ongoing retreat in its preferred shares, such as STRC, STRD, STRK, and STRF. All these assets have plunged from their par levels as investors remain concerned about their balance sheets. There is a fear that the company will need to dilute its shareholders by selling more shares. It may also decide to sell its Bitcoin at a loss.
Third, the stock has dropped due to ongoing weak demand among digital asset treasury companies. A closer look at most of these companies, such as Strive, BitMine, and GameStop, shows they have all dropped this year, while their short interest has soared.
Technicals also explain why the stock has dropped. It has remained below all moving averages, and a closer look shows that it has tumbled below the key support of $104.42, its lowest level in February. As such, there is a likelihood that the stock will drop as investors target the key support at $50.
Is MSTY Stock a Better Alternative?
The ongoing MSTR stock crash has prompted investors to consider the 66%-yielding MSTY ETF, which has over $745 million in assets under management (AUM).
MSTY is a fund designed to provide investors with exposure to Strategy while also offering weekly dividend income. It achieves this by using a covered call strategy, which involves buying the underlying asset and then selling call options against it. These option sales generate premium income, which the fund distributes to shareholders as dividends.
In its case, the MSTY ETF writes call spreads by harvesting options premiums from MSTR’s volatility. Still, despite the high dividend yield, the fund does not outperform MSTR. Data show that MSTR stock has dropped by 41.4% this year, compared with MSTY’s 40% retreat. MSTY’s 12-month return was minus 73%, slightly better than MSTR’s 76%.
Indeed, the falling STRC stock has outperformed these funds. It has dropped by about 18.90% this year, compared with MSTY’s and MSTR’s retreats of 41.4% and 40%, respectively.
MSTY is not the only covered call ETF that has underperformed its core assets. For example, the JPMorgan Nasdaq Equity Premium Income ETF (JEPQ) has had a total return of 9.15% this year compared to QQQ’s 16.47%.
