I asked Grok, “If I use margin in my brokerage account to buy $MSTY, will I earn enough in distributions to pay the margin interest?”
Short Answer
At a 12.575% margin interest rate (my rate at Fidelity), MSTY’s distributions ($7,727.20 annually for a $10,000 investment) comfortably cover the $628.75 interest cost, leaving a net income of ~$7,098.45 per year. However, the strategy carries significant risks due to MSTY’s volatility, potential for margin calls, and possible NAV erosion. To mitigate risks, consider borrowing less than 50% and maintaining a cash buffer for margin calls. Monitor MSTY’s distributions and MSTR/Bitcoin performance closely, and verify your brokerage’s margin terms.
Detailed Answer
With a margin interest rate of 12.575% (Fidelity), let’s calculate whether the distributions from MSTY (YieldMax MSTR Option Income Strategy ETF) would cover the margin interest for a hypothetical $10,000 investment, using 50% margin (borrowing $5,000).
Key Information
– MSTY Share Price: ~$19.24 (based on recent posts and distribution calculations).
– Annual Distribution: $1.2382 per share every four weeks, or approximately $1.2382 × 12 = $14.86 per share annually (77.14% distribution rate).
– Investment Amount: $10,000.
– Number of Shares: $10,000 ÷ $19.24 ≈ 520 shares.
– Borrowed Amount: 50% margin = $5,000.
– Margin Interest Rate: 12.575% annually.
Calculation
Annual Distribution Income
– With 520 shares: 520 X 14.86 = $7,727.20 per year
Annual Margin Interest Cost
For a $5,000 loan at 12.575%: 5,000 X 0.12575 = $628.75 per year
Net Income (Distributions Minus Interest)
Distributions minus interest:
$7,727.20 – $628.75 = $7,098.45 per year
Analysis
Sufficient to Cover Interest: The annual distributions ($7,727.20) significantly exceed the margin interest cost ($628.75), leaving a net income of $7,098.45 annually. Even if MSTY’s distributions were to drop by 50% (e.g., to $7.43 per share annually, as speculated in an X post), the distributions would be:
520 X 7.43 = $3,863.60
This is still well above the $628.75 interest cost.
Break-Even Point: To cover $628.75 in interest, you’d need distributions of at least:
$628.75 div by 520 = $1.21 per share annually. This equates to about $0.101 per share monthly, far below MSTY’s current $1.2382 monthly distribution.