51% Distribution Rate From TSLY Stock: Is It Real or Just a Yield Trap?

If you like Tesla (NASDAQ:TSLA) stock, then you should absolutely love the YieldMax TSLA Option Income Strategy ETF (NYSEARCA:TSLY). Or at least, that’s what an aggressive income hunter might think as Tesla stock doesn’t pay any dividends while TSLY owners get to collect sizable cash distributions.

YieldMax is known for bringing exchange traded funds (ETFs) with ultra-high yields to the market. The YieldMax TSLA Option Income Strategy ETF has a distribution rate that’s impossible to ignore, but if the fund has too many risks, then it could be a yield trap. So, prospective investors should consider the risks and benefits of TSLY before committing any capital to it.

Real Yield, but Subject to Change

To sum up its inner workings, the YieldMax TSLA Option Income Strategy ETF doesn’t directly hold shares of Tesla stock. Instead, it uses synthetic long positions, which involve call and put options, to replicate the effect of holding Tesla shares.

In addition, some of the holdings in the YieldMax TSLA Option Income Strategy ETF could be classified as cash or cash equivalents, including U.S. government bonds and/or funds associated with bonds. However, the TSLY ETF is primarily known for its indirect exposure to Tesla stock and for using options trading strategies to generate income from Tesla shares.

To be more specific, the YieldMax TSLA Option Income Strategy ETF will sell covered call options and/or trade covered call spreads to indirectly derive income from Tesla stock. This is how TSLY delivers its famously high yields and frequent payouts.

Amazingly, the YieldMax TSLA Option Income Strategy ETF advertised a 51.07% expected annual distribution rate as of August 21, 2025. Not only that, but the TSLY fund pays out its cash distributions on a monthly basis, in contrast to many ETFs that only pay once every three months.

Be aware, however, that there’s what I call “yield risk.” The YieldMax TSLA Option Income Strategy ETF doesn’t guarantee that TSLY’s yield will remain at 51.07% in the future, and TSLY’s distribution rate could be cut at any time.

What Could Go Wrong With TSLY

Thus, the current yield for the YieldMax TSLA Option Income Strategy ETF is real and there’s no false advertising going on here. That said, it’s important for investors to monitor TSLY’s distribution rate since it’s subject to change in the future.

At the same time, investors ought to keep track of the share price of the YieldMax TSLA Option Income Strategy ETF. Notably, the TSLY fund automatically deducts 1.04% worth of annualized operating expenses from the share price.

Another factor that affects the share price of the YieldMax TSLA Option Income Strategy ETF is the fund’s covered call option trading strategies. Although they create passive income, these strategies also tend to “cap” or limit the TSLY ETF’s share-price upside potential.

Some of the time, these option trading strategies might even cause the the fund’s share price to decline sharply. This probably occurred during the past 12 months (as of August 21, 2025), when the YieldMax TSLA Option Income Strategy ETF’s share price fell 46.75%.

During that same time span, Tesla stock rallied 43.53%. The takeaway here is that there’s no free lunch in the financial markets and TSLY’s 50%+ yield comes with substantial risks.

Just imagine the impact on your portfolio if you over-invested in the YieldMax TSLA Option Income Strategy ETF and the share price collapsed. Then, think about the toll on your emotions if TSLY’s distribution rate also dropped. Clearly, it’s not a great idea to wager your entire life savings on this fund.

Pondering the Yield Trap Debate

It may be too harsh to call the YieldMax TSLA Option Income Strategy ETF an outright yield trap. The fund’s advertised yield is real, and YieldMax is diligent in delineating the potential hazards involved with the TSLY ETF.

Besides, it’s possible to invest in the YieldMax TSLA Option Income Strategy ETF without getting trapped. The prudent approach is to only own a small number of TSLY shares so that one’s portfolio won’t get wrecked by unfavorable outcomes.

Along with that, it’s wise to frequently check on the YieldMax TSLA Option Income Strategy ETF’s share price and distribution rate. Sharp drawdowns in these areas could be your signal to sell TSLY and avoid getting trapped in an unmanageable trade.

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