My name is Jason, and for the past two years I have been building and publicly documenting an income-focused portfolio built around option-income funds. The question that drives everything I do is simple: can a small portfolio generate meaningful cash flow without needing a traditional million-dollar dividend portfolio first?

According to Snowball Analytics, my portfolio has returned 128.88% since its inception around August 2024. Over the same period, the S&P 500 returned 45.42%. That is out performance by a very large margin, and unlike most ultra-high-yield investors, I did it while also maintaining a positive price return which currently sits at 16.24% since my portfolio’s inception in August 1, 2024. Its price turn has been as high as 35%. But, you know, sell offs happen.

Yes, you read that right. Despite holding funds with trailing dividend yields ranging from 30% to 130%, my price return is positive. Blossom (a social media site for investors with portfolio tracking features) only tracks price return, and even there I am currently at +16.24%. Not many people running ultra-high-yield portfolios can say the same.

If you want to verify any of this, look up JLP Holdings on Snowball Analytics. The portfolio is public.

My Unequivocal Position

Before I get into how I did it, I need to state something clearly, because the ultra-high-yield space is full of people selling you the dream of free money. Dividends are not free money. In fact, there is no such thing as free money. In order for there to be a cash flow, there must be a source from which the cash flows. Okay, well, perhaps the US government is somewhat exempt from this principle.

I view a dividend as a conversion to liquidity without selling shares. Total return is dividends plus price performance. If you understand integers, you know that price performance can go down enough to reduce the value of your investment even when dividends are reinvested. If the total return of the underlying assets is not high enough to support the yield percentage of the fund, your value will decline over time if you do not reinvest some or all of the dividend. Period.

In those cases, you can reinvest some or all of the dividends to try to keep the value of the investment level or growing. In some markets, you can grow your dividend income by reinvesting some of it even if the price of the fund is decreasing. The purpose of these funds is to extract liquidity while getting exposure to the price performance of the underlying asset(s).

If you have a very good year with SCHD or NOBL, the dividends will still pay you a small percentage relative to the value of your investments in those funds (though your yield on cost may rise which is a great thing). With ultra high yield funds, however, you have the option to take an outsized profit through dividends without selling any shares. You can spend the dividend, save it, reinvest it, or deploy the dividend into a different investment all together.

Thus, funds like YieldMax absolutely have viable use cases. What they do not have is a magic exemption from arithmetic.

The Numbers

The portfolio is currently producing income at a rate of nearly 46% of my cost basis. My portfolio has had a positive price return, and my dividends on a per-share average basis have grown along with the price of the fund. Yield on cost of 45.79% against a current yield of 39.13% is only possible when the machine itself has appreciated. I will say that depending on what I was invested in at the time, and the price movements of my investments. My yield on cost has ranged from 30% to around 70%.

My Current Strategy

Over two years I have tried several approaches in this space: single-stock YieldMax funds, Roundhill’s index-based ETFs, Roundhill’s WeeklyPay funds, and REX Shares’ $NVII. The single stock Yield Max funds didn’t work out so well for me despite being concentrated in the magnificent seven companies. During that time, I lagged the indices. The Roundhill Weekly Pay ETFs targeted 120% of the weekly returns of an underlying asset using leverage. When I used these funds, my peak unrealized return in 2025 was nearly 60%. I had never used any sort of leverage before so I got to see what happens when there is a sell off in those underlying assets. I ended 2025 with a total return of 27.5% compared to the S and P 500’s 17.88%.

I had been stock picking off and on throughout my investment journey. Some years I did very well, other years I under performed. And, there were times when I picked investments that had very strong financials only to find out they were cooking the books (I’m looking at you, Kraft Heinz). Sometimes, financials were strong but the stock price would keep declining anyway. There were just too many factors with individual companies that I could not control.

That’s when I decided to return to a strategy that I had done earlier in my investment career. Instead of putting in all of this work to pick stocks that may or may not pan out regardless of the due diligence I did, I started picking market sectors instead. When you pick market sectors, if a company within that sector falls out of favor or shuts its doors, something else takes its place. And, you don’t have to pay very close attention to quarterly earnings for a bunch of individual companies. In spring of 2026, I started targeting semiconductors and, to a lesser extent, AI. When memory income funds like DRMY and YRAM came out, I started buying those as well (these purchases are recent).

That said, I prefer sector funds over single-stock funds. A single underlying can stall for years while you harvest a 40% yield while the price is potentially falling (and so too does the income you receive even if the yield stays at 40%). An entire sector with a genuine tailwind has to fail collectively before your principal takes the same damage. The risk-reward proposition is more favorable than betting on individual stocks.

Does this guarantee my price returns will never go negative? No. Nothing does except for insider trading (ask our esteemed American politicians to find out more). Can I position myself so that I can extract a large amount of liquidity from the portfolio in most types of markets, assuming the underlying does well? Yes. That is the game I am playing.

My protection against NAV erosion is the performance of the underlying asset(s). It’s not fool proof, but NAV performance will be significantly better with underlying(s) that perform well, and, underlying(s) with strong financials and a convincing bull thesis are likely to perform better. This is why I am targeting semiconductors, memory, and AI at this time.

Paying My Bills With a Five-Figure Portfolio

I am in a career transition from information technology to finance and wealth management. During this transition, I have been using the distributions from this portfolio to help pay my bills. Even while taking substantial income out and reinvesting only a small portion at times, the portfolio reached new all-time highs in June (I had started using the dividends to fund living expenses in April of 2026).

I am 40 years old, and I have been paying a majority of my bills with a portfolio that ranges in value from about $13,000 to $21,000 depending on price movements. I hit the $21,000 figure while collecting 100% of the dividends for two months, minus a 10% reinvestment back into the portfolio.

This is not my only income source, but it is currently my largest. And it only works because I have managed, by skill, discipline, and, I will admit, very good luck, to build a life that is very inexpensive to live.

Now, could I have done this with $SCHD or $NOBL? At a portfolio of this size, absolutely not without selling shares. A $20,000 SCHD position yields roughly $1,400 a year. My portfolio was producing income at a rate approaching 46% of my cost basis. And on top of that, my total return over the period would have been significantly lower than 128.88%.

Make no mistake, SCHD and NOBL are great ETFs, but I’d need significantly more capital to pay bills with dividends with these funds.

For a smaller investor in a transition period, that is the difference between an income portfolio and a paper portfolio. Liquidity without share liquidation is the entire value proposition, and it only works when the underlying assets hold up when the underlying asset(s) do well.

What This Is Not

I would not suggest anyone retire off a portfolio of this size. I am not doing that, and this article is not advice to try. What I am demonstrating is a specific use case: an income bridge during a transitional period of life, funded by a small portfolio, without selling a single share.

One can sell shares for income, but when you sell shares, you lose the opportunity to continue to participate in that share’s returns. It’s like when you sell a hen that lays eggs. You can sell the hen for income, but you won’t have any rights to that hen’s eggs anymore. There are times you can sell shares and have more money in your portfolio after a period of time than before you sold the shares. There are also times that selling shares would have had a significant negative impact on the value of your portfolio. This is called sequence of return risks, and selling shares can lead you to realize the consequences of that risk.

Liquidation through dividends doesn’t complete mitigate this risk, but it is a liquidation strategy that is significantly more resilient to sequence of return risk in the long term.

If the semiconductor and memory sectors reverse hard, my price return will go negative and my income will shrink with it. If I stay the course, however, and my bull thesis plays out, I will have the opportunity to recover my capital because I still own the same amount or perhaps more shares if I’m reinvesting.

The Journey Continues

I plan to share this journey here and through other avenues. If you want to follow the performance and the philosophy behind the strategy:

You may follow me on Blossom Social here.

My YouTube channel will launch here in November of 2026.

You may follow me on X here.

YieldMax launched the Memory and Storage Portfolio Option Income ETF (YRAM) on August 24, 2026, and I think it might be one of the more interesting income vehicles to come along in a while. It’s not because YieldMax funds are exotic anymore, but because of what this one sells options on. Memory is arguably the most profitable, most supply-constrained, and most volatile corner of the entire market right now. When you run an ultra-high income strategy, hot markets are where you want to be. If NAV erosion is a deal breaker, markets that are on fire in a good way will be the only markets where you will be happy with this product as an income generator.

With YieldMax, Implied Volatility=Yield

The first thing to understand about the YieldMax family is that implied volatility is the raw material. Their own prospectus language says securities are selected “primarily based on implied volatility levels,” and YRAM specifically evaluates holdings on liquidity, share price, and IV. The fund is engineered to harvest whatever the options market is charging for fear and greed in memory stocks, and the options market is currently charging a lot.

Where does memory IV sit right now? Micron’s 30-day implied volatility has been reading in the mid-50s in quiet stretches, and Marketchameleon has it around 59, and that is only the 17th percentile of its own one-year range. In other words, “calm” for this sector would be a fire drill anywhere else. In hotter moments this summer, Trefis put Micron’s IV at 82%, and around June earnings CNBC reported 111% — the highest implied volatility in the entire S&P 500.

Historically, memory names tend to trade somewhere in the 45–65% IV range, with spikes toward 80% and beyond around earnings and cycle news. So the base case for premium generation is rich, and the spike case is very rich. If the market cools and IV mean-reverts toward the low end of that band, the yield compresses. That’s a trade-off you’re accepting if you invest in this fund.

Why the Underlying Can Support This for Years

An options-income fund is only as good as the thing underneath it, and this is where the memory thesis gets fun.

The AI buildout has turned memory into a structural shortage rather than a normal cyclical upturn. Data centers are expected to consume more than 70% of high-end memory chip output in 2026, per TrendForce. Micron’s HBM capacity is sold out through 2027. Kioxia committed its entire 2026 NAND output back in January, with hyperscalers asking for supply agreements stretching into 2027 and 2028. SK Hynix’s chairman has said global memory supply will likely run roughly 20% below demand through 2030. And after Micron’s latest results, BofA pushed its supercycle timeline out to the end of 2027, with a scenario extending to 2030.

As for margins, SK Hynix posted a record 72% operating margin in Q1 2026. Micron just printed a quarter with an 85% gross margin and signed sixteen multiyear take-or-pay agreements with binding commitments that management says put a floor under margins “well above our peak quarterly margins in any past cycle.”

These are, at the risk of being blunt, obscene numbers for a historically boom-and-bust commodity business. Whatever happens to any individual AI player, cloud provider, or gadget maker, almost every plausible future involves more compute, and more compute means more DRAM, more HBM, more NAND. Fast-access memory and long-term storage are consumed by every compute paradigm such as, AI training and inference today, cloud storage expansion, edge devices, and whatever comes after that such as space-based infrastructure, autonomous systems, things that don’t have names yet. Memory suppliers profit at the layer below the winners-and-losers game. You don’t need to know which AI company wins; you need to know that somebody, somewhere, is buying RAM and storage hand over fist. Right now, everybody is. I thought things were crazy when my friend and I built my gaming PC in 2024, but now things are crazier and it will get more crazy.

What the Fund Does (And When It Lags)

Mechanically, YRAM holds the underlying memory and storage stocks (its sample portfolio is roughly 40% the Roundhill Memory ETF, plus Micron, SK Hynix, SanDisk, Seagate, Western Digital, and smaller names) and sells call spreads on select holdings to generate premium, paying out weekly.

The call spread structure is deliberate, and YieldMax has been explicit about the design target. Chief strategist Michael Khouw has said the firm uses covered call spreads rather than traditional covered calls specifically to target roughly 80% participation in outsized upside moves. The spread sells a call and buys another at a higher strike, so gains don’t cap out entirely when a stock makes a huge run. On YRAM’s first day of trading, Khouw explained on Schwab Network the trade-off in one line: by selling covered call spreads, “we’re getting a little bit less premium week to week. But we get more participation when the stock really rips.” That behavior shows up in the capture ratio YieldMax itself has described on the order of 80% of the upside and 80% of the downside.

That structure has a specific behavioral fingerprint:

• Big rallies: the fund catches roughly 80% of the move, plus the premium. This is where it earns its keep.

• Mild bull markets and chop: the caps on the call spreads start to hinder performance. The fund lags the underlying because it’s giving up the upper portion of ordinary-sized rallies. These are the moves that don’t blow through the spread, and this will result in the fund getting capped.

• Down markets: The fund’s NAV takes the hit, softened on a total return basis but not eliminated by the premium.

So, YRAM is a vehicle for harvesting rich volatility while staying long in a sector you believe in. It is not a total-return substitute for just owning memory stocks or a standard memory ETF like DRAM or SOXX, and, on NAV performance, it will feel disappointing in a slow grind higher.

The Stress Test: What If We Revert to the 2014–2024 World?

Here’s the question that matters for any options income fund: what happens if the sector goes back to “normal”? A decade ago there was no such thing as a memory fund or even a memory trade. Until very recently, memory was never distinct from semiconductors. Micron traded inside the broad semiconductor indices, the Korean giants moved with the same cycle, and the sector lived and died as one block. It’s only the HBM/AI supercycle that carved memory out as a recognized standalone category with its own funds and its own narrative. That’s why I think SOXX is the right benchmark for the pre-2024 period. It’s not an approximation of memory’s behavior; it was memory’s behavior because memory was part of it.

And from 2014 through 2024, SOXX compounded at 23.4% per year (a +907% cumulative run). A 20–25% average annual return is a good decade for semis.

Now the options math. In that environment, semiconductor IV ran much lower, roughly 30%. A fund like YRAM would have been selling for significantly less premium compared to today’s environment, so call the yield around 30%. Run the two against each other:

• Underlying return: ~20–25% per year

• Fund distribution: ~30% per year

• NAV erosion: ~5–10% per year

So in a good market (20-25% average return per year), the fund’s share price bleeds 5–10% annually while paying you 30%. That may sound bad to some, but it isn’t. This is the part most income investors get wrong.

The reinvestment math is the whole game. If you take the distributions in cash and spend them, your income stream shrinks with the NAV: over those ten years, a $50,000 position paying 30% would see its annual income fall 37–61% depending on the erosion rate. But if you reinvest, the fund’s total return is still positive, roughly 20–25% per year, and that’s what compounds:

Here’s what I want you to see from these hypotheticals. With a 30% yield and 5–10% NAV erosion, you only need to reinvest 17–33% of each distribution to keep your income stream growing. The other 67–83% which is roughly 20–25 percentage points of yield relative to the value of the investment, is genuinely spendable without shrinking next year’s paycheck (this only pertains to the example environments). The income machine compounds as long as the underlying sector’s total return stays positive. And really, it’s considered to be bad financial management to spend all of your paycheck without saving it; there is no reason why collecting dividends would be any different. So, when people complain about having to reinvest in weaker markets, I just don’t get it.

In this case, the failure isn’t the fund. It’s the holder. Morningstar estimated that the average dollar invested in YieldMax funds lost 11.2% per year from December 2022 through July 2025, not because the strategy math failed, but because most investors spent every distribution while NAV eroded underneath them. If you treat a distribution like a bond coupon and never replace the eroded principal, you’ve built a slow-motion return-of-capital machine sans the potential returns that you are spending. Reinvest a third of the paycheck in this environment and the picture inverts completely. That’s the discipline this product demands, and, aside from picking the fund with exceptional underlying assets, it’s the difference between the people who lose money in these funds and the people who don’t.

A Potential Strategic Pairing: YRAM + DRMY

I think YRAM pairs well with the XFUNDS Memory Income ETF (DRMY), which launched a few weeks earlier in July 2026.

DRMY is what we may call a more aggressive sibling. It’s an actively managed basket of memory companies, currently concentrated in Micron, SK Hynix, and Samsung, that primarily holds the underlying stocks, with the ability to build exposure synthetically through options where that’s more efficient (handy for names like the Korean giants). Its income engine is mainly put-spread based: it sells credit put spreads to collect premium, with call spreads available as a secondary tool.

That put-spread tilt is what defines DRMY’s behavior. Selling put spreads doesn’t cap upside at all. Rather, the position just collects premium and sprints like a bat out of Hell when its underlying rips. So, DRMY catches the upswings, full stop. The cost is on the other side: short put spreads add more downside exposure below the strikes, so in a memory selloff, DRMY falls harder than the stocks alone. It’s growth-first, income-second. Though, I will note DRMY retains some of its premium instead of paying out all of it. This will help cushion the NAV to an extent.

Together they form a barbell on the same thesis:

• DRMY is your direct engine. Full participation in memory’s upside, amplified exposure to its crashes. The current yield of this is around 35%.

• YRAM is the larger paycheck provider at the cost of upside participation. It catches roughly 80% of the massive upward swings (the ones that blow through the spread caps), throws off weekly income at a rate driven by the sector’s fat IV, and its distributions give you a steady stream to redeploy into DRMY, at the bottom, when memory is on sale.

In a euphoric melt-up, both perform and YRAM pays you fat stacks of cash to hold through it. In a grinding bull market, DRMY outpaces YRAM. In a crash, YRAM’s higher premium and yield soften the amplified drawdown you’re taking in DRMY. The pairing doesn’t remove the sector risk, but it lets you size memory exposure like you mean it while still getting paid to wait. So, basically, buy YRAM if you are bullish but memory stock prices are inflated. Buy DRMY in a down market or in a crash. That way, when the sector recovers, DRMY will likely catch more than 100% of the upside and that will help recover your capital more quickly than holding YRAM alone.

What Could Go Wrong?

There is always risk:

1. IV Lowers And Lackluster Underlying Performance. If memory stocks go sideways-to-down while IV compresses toward 45%, the yield shrinks and the NAV still bleeds.

2. A classic memory bust. The sector’s history is brutal cycles. If memory stocks fall, DRMY and YRAM would fall sharply along with it. In the 2008 Financial Crisis, SOXX suffered about a 70% drawdown. Even in today’s market, SOXX crashing would likely take the memory stocks down with it.

3. The behavior risk. As shown above, this fund can punish spend-everything holders. You can spend everything when the underlyings are doing exceptionally well, but in a down market or even in a mild or standard bull market, reinvestment may be required to keep your capital and income stream stable. DRMY can help offset YRAM’s lag in bull markets but it will not pay as much as YRAM in most markets. You have to decide how much income is acceptable and blend the two funds (or not) accordingly.

The Verdict

My opinion is that we’re in the early-to-middle innings of a genuinely structural memory supercycle, supply short of demand for years, margins at levels the industry has never sustained, and demand drivers (AI, cloud, whatever’s next) that all consume memory by definition. YRAM is a way to get paid handsomely for holding that view. Overall, I think YRAM’s yield can be supported for years; just be mindful of the risks and what could happen should the sector cool down in the future.

If you take their story seriously, they’re describing years of demand that exceed supply. Some say that means AI and chips are fizzling out. What it really means, however, is record profits.

Some are saying smartphone demand is lower; I even had one YouTuber try to argue that smartphones are facing a nine year backlog in the future. So the bears are all over the place and can’t even agree on what the future holds or even what is going on in the present.

Smartphones are high volume, but they’re not where the fattest margins live. The real money is in AI data centers and other premium customers that have to get silicon or nothing they’re building works. In a genuine squeeze, chipmakers serve the customers who pay the most, raise prices because demand is strong and capacity is constrained, and let low margin volume scramble for what’s left (typically older chips).

All that extra profit doesn’t vanish into thin air. It shows up as free cash flow, and free cash flow is what they use to build more capacity. Scarcity, sticky demand, rising prices, and capacity expansion are not signs of a sector that’s dying. They’re signs of one that’s doing what it’s supposed to do when the world is begging for what it sells.

Now let’s talk about the capex panic. Yes, the AI names are spending a ridiculous amount of money on infrastructure. No, that doesn’t automatically mean they’re insane. These are companies sitting on huge operating cash flow, dominant market positions, and cheap access to debt. They’re not guessing with rent money. They’re building because they think the returns are there, and right now their behavior looks a lot more like “we’re laying down a new layer of the economy” than “we’re YOLOing into a meme bubble.”

Capex only becomes a real problem when the spending outruns reality: when demand rolls over, pricing power disappears, and margins get crushed so badly that new investment never pays back. That’s not what the semiconductor and AI infrastructure complex looks like today. What we see instead is tight capacity, premium customers signing multi-year deals to lock in supply, and chipmakers getting paid well for it. You can slap the word “bubble” on that if it makes you feel smart, but the cash flows don’t care what you call them.

As far as how my semiconductor-heavy income portfolio is doing, even after the recent drop, I’m up 36.54% in total returns this year. My trailing yield is about 50%, my yield on cost is 57%, and I’m still up roughly 12% in capital appreciation. If I slip into the red, I’ll buy more. Not because I enjoy pain, but because I know the difference between a temporary sentiment tantrum and a broken thesis.

Every time the bears have yelled, “It’s over, the AI bubble has popped,” the pattern has been the same. It’s been scary headlines, volatility, and then a recovery. Volatility has been one of my best friends since 2020. I love it. If the underlying economics still make sense, volatility isn’t a warning, it’s a sale. Warren Buffett and Charlie Munger both argued that volatility isn’t risk. Sometimes it is, but in this case, it is not a risk. Rather, it’s an opportunity. Now is a great time to get into the chip sector or to increase your position.

I’ll keep collecting distributions, using the drops to my advantage, and letting math and patience do what they’ve already done for me, over and over again. Print me money.

In a previous article, I promised an article on this topic. About five months later, here we are!

Stop thinking of your portfolio as a pile of money you occasionally skim from. Start thinking of it as a business you own and manage, similar to an investment holding company.

A holding company doesn’t exist to hand every dollar of profit straight to its owner the moment it comes in. It collects income from its various holdings, decides how much to distribute, and reinvests the rest to grow the overall enterprise. That’s exactly the model I use for my own portfolio.

I’m the owner, deciding how much profit gets paid out versus kept in the business. I’m also the one managing where retained profit goes, whether that’s back into existing positions or new ones. And I’m the one drawing a salary from whatever gets distributed. Running the portfolio this way keeps me from falling into the trap most investors fall into, which is treating every dividend payment as spending money the moment it lands.

The 130% Target

Here’s how I think about whether my portfolio can actually sustain my life. I don’t just ask if it covers my expenses. I ask if it covers at least 130% of my expenses.

That extra 30% isn’t fluff. It’s retained income. It’s the buffer that helps me handle a dividend cut, a rough patch in the market, or just plain inflation without having to touch principal or panic. If my monthly needs are $2,000, I want my portfolio producing at least $2,600 before I consider that income sustainable. The leftover goes straight into savings and reinvestment.

Paying Myself a Salary

This is the part I think most people skip entirely. Ideally, I won’t take everything the portfolio produces (sometimes you might have an emergency). I set myself an actual salary, like $400 a month or $600 a month, whatever fits my situation at the time, and I reinvest the rest.

Think about how a real holding company operates. It doesn’t drain every dollar of profit out of the business the moment it comes in. It pays a distribution and lets the company keep growing with what’s left. I run my portfolio the same way. The salary keeps me funded. The reinvestment keeps the business scaling.

Cutting My Own Pay When Times Are Tough

Sometimes, investors get it backwards. When the market dips and their portfolio value drops, they get nervous and pull out more, not less. That’s the opposite of what a well run business does.

When my investments are down, I try to take as little as possible. I will do this by cutting discretionary spending. Instead, I let more of the dividend income flow back into reinvestment. Shares are cheaper during a downturn, so every dollar I put back to work buys more future income than it would in a strong market. I’m essentially buying my own holding company’s assets at a discount, same as any smart owner would.

This is uncomfortable in the moment. It feels safer to take more cash when things look shaky. But taking less and reinvesting more during the dip sets up a faster recovery once the market turns back around.

Earning the Raise

Salary increases shouldn’t happen just because I had one good month. They should happen because the underlying business, my portfolio, has actually grown enough to support a bigger draw sustainably.

So before I bump my salary up, I ask the same question I started with. Is the portfolio still comfortably clearing that 130% mark at the new, higher salary level? If yes, I give myself the raise. If not, I hold steady and let the reinvestment keep compounding until it can.

The Bigger Picture

None of this is complicated math. It’s really just discipline dressed up as a business framework. Pay yourself a fixed, modest salary. Keep a real cushion above your needs. Reinvest the surplus to grow the business. And when times get hard, protect the business first instead of draining it to protect your comfort.

That discipline in the down years is what earns you the bigger paycheck in the good ones. When you buy the dip, you are lowering your cost basis. When you lower your cost basis, you are providing a buffer when the market recovers. You are better able to weather downturns by trying to avoid taking income when you are not at an overall profit for the income producing asset.

My “Holding Company:” JLP Holdings

I did a nerd flex about a year ago and used a DBA to name my brokerage JLP Holdings. Why was this a nerd flex? Well, JLP Holdings is my organization's name on Grand Theft Auto Online. My friend asked me why. I answered, "Why not?" One day, more than likely when I am pushing weeds (that is mostly what grows in Pensacola, FL. Daisies don't grow naturally here.), it will be converted into a trust for charity purposes.

When I played GTA Online, I loved getting significant passive income while I did random things that may or may not have included terrorizing the citizens of San Andreas (I still play, feel free to add me, IrenaeusofPcola on PSN—Just attach a note saying that you found me on my substack so I know you aren’t a bot or something).

If you ever want to check out JLP Holdings performance, you can look up JLP Holdings on snowball-analytics.com.

In late November 2022, a company called YieldMax released a fund like no other. Its ticker was TSLY, and its annualized distribution rate sometimes exceeded 100%.

Many investors, including those with little or no investing experience, saw the yield and thought, “I can make 100% per year?” Money poured into the fund, which was based on Tesla (TSLA), a highly volatile stock with passionate retail speculation. Over time, TSLY’s NAV declined, and YieldMax eventually did a reverse split on the fund. During this period, YieldMax launched additional funds, and many followed the same pattern: high percentage distributions, but declining NAV meant shrinking dollar payouts. This left YieldMax with very unhappy investors.

Throughout this time, YieldMax was transparent about how the funds worked. The company’s owner, Jay Pestrichelli of ZEGA Financial, did dozens of interviews on news shows and YouTube, explaining clearly that if you didn’t reinvest the dividends, you were divesting from the fund. Despite his warnings, many investors didn’t understand the mechanics or chose to ignore them. I don’t blame YieldMax for this.

In fact, several YieldMax funds have performed well: CHPY, GDXY, SOXY, and BIGY. CHPY and GDXY don’t target a specific distribution rate, while SOXY and BIGY target 12%. I also expect YieldMax’s newer target-25% funds to do well in strong bull markets (NVIT will, anyway. The rest of the underlyings for the other funds suck).

I say all of this because the history of the ultra-high-yield community and YieldMax is instructive. As I’ve watched the saga unfold, I’ve concluded that many content creators covering these funds don’t actually understand them. In this article, I’ll explain how ultra-high-yield funds actually work, when they make sense, and how to use them without losing your shirt.

What are Ultra-High-Yield Funds?

Ultra-high-yield funds, like those from YieldMax, Defiance, and GraniteShares, are not traditional dividend funds. They don’t own a portfolio of dividend-paying stocks and pass through the dividends. Instead, they use options strategies (primarily covered calls and synthetic positions) to generate income from stocks that may not pay dividends at all, or pay very little.

The most common structure is the covered call strategy. The fund either owns shares of the underlying stock or uses synthetic positions to replicate ownership, then sells call options against those positions. The premium collected from selling those calls is distributed to shareholders as “dividends.”

But here’s what most people miss: these aren’t dividends in the traditional sense. They’re option premium income. And option premium income behaves very differently than corporate dividends.

When a company pays a dividend, it’s distributing a portion of its earnings. When an options-based fund pays a distribution, it’s monetizing volatility and giving up upside. If the underlying stock rips higher, the fund’s upside is capped at the strike price of the calls it sold. The distribution you received came at the cost of potential gains.

This is why these funds can have massive yields during sideways or moderately bullish markets, but they get crushed when the underlying stock goes parabolic. You trade participation for income. That’s the deal.

When Ultra-High-Yield ETFs Work

Ultra-high-yield funds work best in specific market conditions:

1. Strong, sustained momentum in the underlying sector. If you’re holding NVDY or NVIT during a raging AI bull market, you’re collecting fat premiums while the underlying appreciates steadily. The fund gives up some upside, but you’re still getting capital appreciation plus high income. This is the sweet spot.

2. Sideways or choppy markets with high implied volatility. When stocks are bouncing around but not trending strongly in either direction, option premiums are elevated. The fund collects premium, the stock doesn’t run away from you, and you get paid to wait. This is where covered call strategies shine.

3. You have an exit strategy. The single most important factor is knowing when to get out. These funds are not buy-and-hold-forever investments. They’re tactical plays. You enter when the sector has tailwinds, you collect distributions while momentum is strong, and you exit when the tailwinds fade or the underlying fundamentals deteriorate.

I’ve made this a personal rule: once I sell out of a more aggressive or leveraged ultra-high-yield fund, I lock those gains into my core funds (GPIX and GPIQ, in my case). I only deploy new capital into riskier plays when worthy opportunities present themselves. This prevents me from chasing returns with my winners and keeps my core portfolio intact.

When Ultra-High-Yield Funds Don’t Work

These funds fall apart in specific scenarios:

1. Bear markets or steep drawdowns. When the underlying stock tanks, the NAV of the fund tanks with it. The distributions might remain high on a percentage basis, but the dollar amount shrinks because the NAV is shrinking. If you’re taking distributions in cash and not reinvesting, you’re liquidating your position at declining prices. This is exactly what happened to early TSLY holders.

2. Parabolic moves in the underlying. If you’re holding a covered call fund and the underlying stock goes vertical, you’re stuck watching from the sidelines. Your upside is capped, and you massively underperform just holding the stock. This is the price you pay for the income.

3. You don’t understand the mechanics. If you think the yield is “free money” and you’re not tracking NAV, you’re going to get blindsided. These funds require active management and understanding. These are not instruments for passive investors. It requires active monitoring and involvement.

A Note on Other Strategies

Not all ultra-high-yield funds use covered calls. Some funds, like those from Defiance and others, use put-selling strategies, synthetic dividends, or more complex option structures involving spreads and collars. These strategies have different risk-return profiles than covered call funds.

Put-selling funds, for example, collect premium by selling puts rather than calls, which means they’re exposed to downside risk in a different way. Funds using spreads or collars often have lower yields but more defined risk parameters.

I’ll cover these alternative strategies in a future article, as they deserve their own analysis. For now, just know that when I refer to “ultra-high-yield funds” in this piece, I’m primarily talking about covered call and synthetic covered call strategies like those used by YieldMax.

Common Misconceptions

Misconception 1: “The yield is guaranteed.”

No. The yield fluctuates based on market conditions, implied volatility, and the fund’s ability to generate premium. A fund targeting 25% annual distributions might pay that in a bull market and 10% in a bear market.

Misconception 2: “I can just take the distributions and live off the income.”

Only if the NAV is stable or growing. If NAV is declining and you’re taking distributions in cash, you’re eating into principal. If your NAV is decreasing, your income will shrink with it. And if your total returns aren’t positive, you’re losing money, income or not.

Any income you plan to live off of should at least be stable. While some covered call funds have been stable since inception, that’s unlikely to last forever. You must be ready to pivot when the time comes. Remember, income and total return are NOT the same thing.

Misconception 3: “These funds are a scam because the NAV declines.”

NAV declines happen for two reasons: the underlying stock declines, or the fund is paying out more than it’s earning in premium (return of capital). The first is a market risk you accept. The second is unsustainable and should be avoided. But neither makes the fund a scam—it makes it a tool that requires understanding.

Misconception 4: “Reinvesting dividends solves everything.”

Reinvesting helps you maintain share count, but it doesn’t change the underlying economics. If the fund is in a declining NAV spiral because the underlying stock is tanking, reinvesting just means you’re buying more shares of a sinking ship. Reinvesting works when the underlying has momentum. It doesn’t fix a broken thesis.

My Approach

I use ultra-high-yield funds tactically, not as core holdings. I look for funds in sectors with clear tailwinds: AI, semiconductors, biotech breakthroughs, commodities in supercycles. I enter when momentum is strong, I collect distributions, and I exit when the tailwinds fade or the chart breaks down.

I treat these funds like businesses. If the business (the underlying sector) is thriving, I stay invested. If the fundamentals deteriorate or the technicals roll over, I exit. I don’t marry positions. I don’t hope and pray. I allocate capital, extract value, and move on.

And here’s the key: I lock gains from these tactical plays into my core holdings. GPIX and GPIQ are two examples that provide diversified income and growth exposure. They’re the foundation. Ultra-high-yield funds are the opportunistic layer on top. When I take profits from the opportunistic layer, those profits go into the foundation. New capital, not recycled gains, goes into the next tactical play.

This keeps me from eroding my base and ensures that even if I get a tactical call wrong, my core portfolio continues compounding. If things work out the way I hope, the ultra high-yield ETF grows in NAV despite their very high distributions. This has happened for CHPY and GDXY, but that doesn’t mean that the NAV will not eventually decline when those markets cool down.

Conclusion

Ultra-high-yield funds are not for everyone. They require understanding, active management, and discipline. But used correctly, they can be powerful tools for generating income in the right market conditions.

The people who got wrecked by TSLY didn’t lose money because YieldMax is a scam. They lost money because they didn’t understand what they were buying. They saw a big yield, assumed it was passive income, and ignored the mechanics.

Don’t make that mistake. Understand the product. Know when to use it. Know when to walk away. And above all, treat your portfolio like a business, not a lottery ticket. In the next article, we will explore what it means to treat your portfolio like a business.

It sounds clever, but it’s not quite right.

The “Fake Income” Argument

Here’s the typical version of the argument you’ll see on Reddit or Twitter:

“A $100 stock pays a $4 dividend. After the ex-dividend date, the stock is worth $96, and you have $4 in cash. Your total wealth is still $100. You didn’t gain anything. You just moved money from one pocket to another. Dividends are fake income.”

On the surface, this seems airtight. But if you apply the same logic to any method of generating cash from investments, the argument collapses.

Selling Shares Isn’t “Real Income” Either

Let’s say you own that same $100 stock, but it pays no dividend. You need $4 for living expenses, so you sell 4% of your position. Now you have $96 in stock and $4 in cash.

Your total wealth is still $100.

By the “fake income” standard, selling shares is also fake income. You didn’t gain anything—you just moved money from one pocket to another.

So if dividends are fake, then so is every withdrawal strategy. The only “real” income would be money that appears out of nowhere without reducing your portfolio value—and that doesn’t exist.

Of course, someone can generate income by collecting dividends or selling their shares. The profit comes from total returns, not from the liquidation of assets, and profits are what determines if the income is sustainable.

All Income Comes from Somewhere

Any income comes from somewhere. It’s called accounting.

When your employer issues you a paycheck, that money comes out of their cash balance. Does that make your paycheck fake income? Of course not. It’s real money you can spend, save, or invest.

The difference with dividends is that you own the share, so you get to see the accounting behind how you receive your income. You can watch the stock price adjust on the ex-dividend date and convince yourself you’re just shuffling money around. But that same logic would make every form of income fake, because all income has a source and all transactions have two sides of a ledger.

The cash that hits your account is real. The tax bill you pay on it is real. Calling it “fake” because you can see where it came from leads us to absurd conclusions.

If You Can Receive More Than Your Principal, It’s Not Fake

Here’s a simple test. If it’s possible to receive more in cumulative income than your original principal amount over a period of time, can that income really be called “fake”?

Let’s say you invest $10,000 in a dividend-paying stock or fund. Over 10 years, you collect $12,000 in dividends while your position is still worth $11,000. You’ve received $23,000 in total value from a $10,000 investment. That extra $13,000 didn’t come from “your own money;” it came from the underlying cash flow and growth of the business or fund.

If you had instead owned a non-dividend growth stock and sold shares to generate $12,000 in cash over the same period, you’d have less than $11,000 remaining in stock (assuming the same total return) because you’d have reduced your share count along the way.

In both cases, you’re converting returns into cash. But only one gets called “fake,” and it’s not because the math is different; it’s because people misunderstand what income is: an inflow of liquidity.

All Income Reduces Invested Capital (Unless You’re Compounding)

The truth is simpler: any time you convert invested capital into spendable cash, you reduce the base that can compound going forward. That’s true whether the cash comes from:

Dividends taken in cash

Selling shares

Interest payments

Realized capital gains

None of these are “fake.” They’re all real conversions of invested capital into liquidity. The relevant question isn’t how the income is delivered. Rather, it’s whether the income is sustainable given the underlying economics.

Sustainability is the Real Question

A company that earns $10 per share and pays out $4 as a dividend is delivering sustainable income. The business generates enough cash flow to support the payout, and the remaining $6 stays in the company to fund growth, pay down debt, or buy back shares.

A company that earns $2 per share but pays out $4 as a dividend is delivering unsustainable income. The payout exceeds earnings, so it’s being funded by debt, asset sales, or return of capital. That’s not fake income. It’s real cash in your account, but it’s income that can’t last.

The same logic applies to selling shares. If you own a diversified portfolio returning 8% per year and you withdraw 4% annually, that’s sustainable (unless you run out of shares to sell). If you withdraw 10% per year, you’re eating into principal faster than it can grow, and eventually you’ll run out of money.

The method of withdrawal doesn’t determine sustainability. The rate of withdrawal relative to the underlying return determines sustainability.

Shares Compound, Dollars Don’t

Here’s something most people miss: Dollars don’t compound. The shares you own do.

When you sell shares to generate income, you’re not just converting capital to cash. You’re permanently reducing the number of shares you own, which means you’re losing the potential to profit from those shares in the future.

One might ask, “Why must it be framed this way? If the value of my other shares are going up, I am still making profit even if I am selling shares.” This is true, but even for brokerages that allow you to do sell fractional shares, you can only sell so small of a slice of one. And, since the ownership of the shares is the cause of your inflow of liquidity, your dollars are compounding on a per share basis. Once you sell a share, you have sold away an asset and lose the opportunity to continue to profit from it.

If you own 100 shares of a stock at $100 and it grows to $150, you make $5,000. If you sell 20 shares to generate income along the way, you only own 80 shares when the price hits $150, so you make $4,000 instead.

With dividends, you don’t have to sell shares to generate income. You maintain full ownership of your position, which means you retain the full opportunity to profit from future price appreciation and/or dividends on every share you own.

This is why “dividends don’t matter, total return is all that counts” misses the point. Yes, total return is what grows your wealth. But how you extract income from that total return determines how much ownership, and future upside, you preserve.

Why the Distinction Matters in Practice

So why do people care whether income comes from dividends or share sales if they’re economically equivalent on paper?

Because in the real world, behavior and market timing matter. I often tell people, “We live on a planet, not a spreadsheet.”

If you rely on selling shares for income, you have to decide what to sell and when to sell it. If the market drops 20%, you’re forced to sell more shares to generate the same dollar amount of income, which locks in losses and reduces your future compounding base. This is called sequence-of-returns risk, and it’s one of the biggest threats to retirement portfolios.

If you rely on dividends for income, the cash arrives automatically. You don’t have to pick a sell point, and you don’t have to liquidate shares during a drawdown. A well-structured dividend portfolio can keep paying you even when the market is down 30%, because the underlying businesses/funds are still generating cash flow.

That doesn’t make dividends “better” in every situation. Rather, it makes them structurally different in ways that matter for people who need predictable cash flow.

The Real Myth

The real myth isn’t that dividend income is fake. The real myth is that there’s a meaningful distinction between “real” and “fake” income based on how it’s delivered.

All income from investments is a conversion to liquidity. The only questions that matter are:

1.) Is the income sustainable given the underlying return?

2.) Does the structure fit your goals and behavior?

3.) Are you preserving enough ownership to meet your long-term goals?

If you’re in the accumulation phase of investing and don’t need cash, reinvest everything and let it compound: dividends, gains, whatever. If you’re in the distribution phase and need reliable monthly cash without forced selling, a dividend-focused strategy might be exactly what you need.

In conclusion, all income is real income. It doesn’t matter whether the source is profitable when defining income; however, profitability does matter if you wish to sustain your income.

Over the years, there has been a disconnect between growth investors and dividend investors. In fact, some growth investors (particularly content creators) have argued that dividends are “fake income.”

As someone who has spent a lot of time studying philosophy over the past decade and a half, it seems to me that the disconnect between these two camps is a result of unclear definitions. As far as I am concerned, however, both growth and dividend investors are ultimately income investors. A principal difference between the two is how they convert their portfolios to cash.

Rethinking What a Dividend Is

It is often said that a dividend is a share of profit in the form of a cash payment. I, however, do not see it that way. If a company is not profitable and still pays a dividend (as does often occur), are they sharing profits? How can they share profits if there is no profit to share? Such a definition seems incoherent to me.

The truth is, there are many forms of income, and unless you are the Federal Government, any money that is paid to someone has to come from somewhere. If you sell shares, the dollar amount comes out of your portfolio. If you collect dividends, the dollar amount comes out of your portfolio. If a company pays you a salary, that money comes out of their balance sheet. So all of us who seek to participate in the economy are seeking income.

And why do we seek income? Because we need liquidity. Cash can be exchanged for goods and services in a way that stocks, bonds, or real estate cannot. This distinction between liquid and illiquid assets is foundational to understanding what a dividend actually does.

And certainly, growth investors can produce income by selling their shares. However, dividend investors do not have to sell their shares in order to convert their portfolio to cash. Thus, not only are dividends conversions to liquidity, they are conversions to liquidity without selling shares.

Advantages of Dividend Investing

When growth investors sell their shares, they are losing the opportunity for the shares they sold to make them money. Certainly, their other shares may have increased in value, but there are only so many shares to sell. Dividends sidestep this problem entirely. As we’ll see in future articles, dividend strategies can safely support withdrawal rates above 4% per year, a threshold that becomes far riskier for growth investors relying on share sales.

This doesn't mean growth investing is a bad strategy. Certainly, it has its advantages. Selling shares offers tax control, timing flexibility, and potentially access to faster-growing companies. But for those prioritizing income in the distribution phase of investing, dividends offer a compelling alternative.

Conclusion

This definition, dividends as conversions to liquidity without selling shares, is the foundation for everything else we’ll explore in this newsletter. It changes how we evaluate ultra-high-yield ETFs, how we think about sustainability, and how we construct portfolios for income. If you’re rethinking dividends, you have to start by rethinking the definition itself.