An in-depth analysis of covered call ETFs targeting MicroStrategy and their collective impact on the options market.
Not all income ETFs are built alike. While all aim to generate yield from MSTR's volatility, their underlying strategies vary significantly, from holding the stock directly to employing complex synthetic positions.
MSTY employs a collar strategy, selling out-of-the-money (OTM) calls to generate income while simultaneously buying OTM puts for downside protection. This creates a defined risk-reward profile but involves a high volume of options contracts.
MSTW utilizes a more traditional approach. It holds MSTR stock directly and sells call options against its long stock position. It also holds long-dated call options to gain leveraged exposure, blending classic covered calls with a modern twist.
MSII creates a synthetic long MSTR position using long-dated call options and T-Bills as collateral. It then sells shorter-dated calls against this synthetic stock position to generate income, often creating calendar spreads.
Similar to MSII, IMST holds a portfolio of long-dated MSTR call options and cash equivalents. It then writes (sells) short-dated call options, effectively running a synthetic covered call strategy without holding the underlying shares.
MST stands out by primarily using Total Return Swaps to gain exposure to MSTR. This derivative-heavy approach allows for significant leverage. It then sells calls against this swap exposure to generate yield, a highly synthetic strategy.
WNTR also uses a synthetic long position via options and T-Bills. It actively sells calls for income while also buying puts for protection, mirroring MSTY's collar strategy but on a synthetically created MSTR position.
The large-scale shorting of MSTR calls by these ETFs has a tangible effect on the underlying stock. This is due to complex options mechanics, particularly the concept of gamma and delta hedging.
When an ETF sells a covered call, the market maker on the other side of the trade must "delta hedge" to stay market-neutral. As MSTR's price rises, the short call option becomes more valuable, and its delta (sensitivity to price changes) increases. The market maker must then sell MSTR shares to maintain their hedge. This constant selling creates a "drag" or "anchor" on the stock's price, effectively capping its upward momentum. The more these ETFs sell options, the more significant this effect becomes, creating a self-reinforcing dynamic of suppressed rallies.
If MSTR experiences a rapid price increase, the market makers holding short calls from these ETFs are forced to sell MSTR stock to rebalance their hedge, which can suppress the rally. Conversely, if MSTR's price drops sharply, the call options lose value, causing their delta to decrease. Market makers must then buy MSTR shares to re-establish their hedge. This buying pressure can create a floor and help cushion the fall, making the covered call ETFs a subtle source of both upward resistance and downward support.
A key observation is that the very existence and popularity of these funds can contribute to lower implied volatility. By consistently selling a high volume of call options, these ETFs increase the supply of options in the market. This surge in supply, especially for near-term expirations, can artificially depress option premiums, which in turn lowers the implied volatility of MSTR. The funds' strategies, therefore, not only aim to profit from volatility but also, ironically, help to diminish it. This creates a feedback loop where their own actions make it harder to generate the same level of income over time.
The Assets Under Management (AUM) reveal the scale of each fund. MSTY is the dominant force in this niche, dwarfing its competitors and holding a significant portion of the MSTR options landscape.
This is the core of our analysis. By aggregating all the short call positions held by these ETFs for the Sept 5, 2025 expiration and comparing them to the total market-wide open interest, we can visualize the institutional footprint and infer where other market participants, including retail, might be concentrated.
The chart reveals where the ETFs' short call positions (orange) make up a portion of the total open interest (blue). Strikes where the blue bar significantly exceeds the orange bar, such as the $400, $410, and $450 strikes, indicate substantial interest from other parties. This "gap" represents positions held by market makers, other institutions, and potentially a significant number of retail traders.