NVDY vs. SPYI: NVIDIA Yield Monster or Covered Call Income King?

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As the universe of exchange traded funds (ETFs) expands, some funds will entice income-seeking investors with double-digit annual yields. Two of these standout high-yield ETFs are the YieldMax NVDA Option Income Strategy ETF (NYSEARCA:NVDY) and the NEOS S&P 500 High Income ETF (BATS:SPYI).

If you’re itching for sky-high yield and are bullish about NVIDIA (NASDAQ:NVDA), then it may be hard to resist buying NVDY. However, prospective investors should take note of the risks involved with the YieldMax NVDA Option Income Strategy ETF.

Like NVDY, the SPYI ETF also provides monthly income with an annual distribution yield exceeding 10%. Plus, the NEOS S&P 500 High Income ETF can de-risk your portfolio somewhat. At the end of the day, sensible investors can own both of these intriguing funds for a balanced mix of yield and stability.

NVDY: This Yield Monster Could Bite You

As we dive into the NVDY ETF, you’ll surely agree that this fund is a yield monster. Yet, bear in mind that monsters can bite you and a cautious approach is crucially important.

The YieldMax NVDA Option Income Strategy ETF is based on NVDA stock, but the fund doesn’t directly invest in NVIDIA shares. Instead, NVDY uses synthetic option strategies to replicate ownership of NVIDIA stock shares.

Next, the NVDY ETF utilizes a covered call option writing/selling strategy to create income. Experienced traders of derivatives may know that selling covered calls will typically limit the potential gains from upward share-price movement.

With the YieldMax NVDA Option Income Strategy ETF, if NVIDIA stock moves higher, this could have a positive but limited effect on NVDY. Because of the fund’s covered call selling strategy, holders of the NVDY ETF may be disappointed by the share-price performance if NVDA stock rockets higher.

Also, the YieldMax NVDA Option Income Strategy ETF keeps U.S. Treasury bonds in its holdings. These bonds can serve as collateral for the NVDY ETF, and they may generate more income for the fund’s shareholders.

Another main feature of the YieldMax NVDA Option Income Strategy ETF is that it pays distributions each and every month. What really captures passive investors’ attention, though, is NVDY’s mouth-watering annual distribution rate (i.e., the annualized dividend-like yield) of 55.19%.

That’s enticing, but holding the YieldMax NVDA Option Income Strategy ETF is risky because the share price tends to be volatile and could fall sharply. Moreover, there are annual operating expenses totaling 1.27% of the fund’s share price. Besides, there are no assurances that the NVDY ETF will continue to offer the current 55.19% distribution rate.

SPYI: Impressive Income and Price Stability

Is there an ETF that provides double-digit annual yield and monthly distributions like NVDY does, but with less risk? The answer is yes as the NEOS S&P 500 High Income ETF checks all the right boxes.

The historical price action of the SPYI ETF suggests that it’s less susceptible to volatility than the YieldMax NVDA Option Income Strategy ETF. Whereas NVDY is based on NVIDIA stock and Treasury bonds, the NEOS S&P 500 High Income ETF invests in roughly 500 different stocks for greater diversification.

Here’s how this fund works. The SPYI ETF uses index options to indirectly invest in the S&P 500. This is a well-known index that includes large-cap sector leaders like Apple (NASDAQ:AAPL), Bank of America (NYSE:BAC), McDonald’s (NYSE:MCD), Home Depot (NYSE:HD), Coca-Cola (NYSE:KO), Exxon Mobil (NYSE:XOM), and Procter & Gamble (NYSE:PG).

Now, we’re starting to see why the NEOS S&P 500 High Income ETF is a comparatively stable fund. NVDY uses a covered call writing strategy to derive income from NVDA stock, while SPYI deploys a similar strategy to generate extra yield from a large basket of stocks.

Now, for the million-dollar question: How much yield does the NEOS S&P 500 High Income ETF offer? Currently, the fund’s annual distribution rate is 12.5%, which is impressive even if it’s not as huge as the SPYI ETF’s 55.19% distribution rate.

Furthermore, the NEOS S&P 500 High Income ETF only deducts 0.68% in annual fund expenses. This compares favorably to the 1.27% that the YieldMax NVDA Option Income Strategy ETF deducts.

Try a Balanced Approach

So, which will you choose? Do you prefer the high-risk, high-reward proposition of the the YieldMax NVDA Option Income Strategy ETF? Or, will you aim for safety and diversification with NEOS S&P 500 High Income ETF?

Actually, it doesn’t have to be an either/or scenario. It’s possible to try a balanced approach of risk and stability by owning some shares of SPYI and adding a small number of NVDY.

That way, you can shoot for bigger yield with the YieldMax NVDA Option Income Strategy ETF but also stay anchored with the NEOS S&P 500 High Income ETF. With a cautious portfolio strategy, you should be able to leverage these two fascinating funds for consistent monthly income.

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