The Kurv Yield Premium Strategy Amazon AMZN ETF (AMZP) is an actively managed exchange-traded fund designed to provide investors with monthly income through the use of a variety of options trading strategies in order to capitalize on Amazon.com, Inc. (AMZN) shares throughout any market conditions. The strategy generates income through the sale of options, gaining premium that can be distributed to shareholders, while earning a price return on AMZN shares through the purchase of at-the-money call options. While the strategy gains long exposure to AMZN shares, investors should be aware that upside potential may be capped as a result of the covered call positions.

About Kurv Yield Premium Strategy Amazon AMZN ETF

AMZP was launched by Kurv Investment Management on October 30, 2023, and is traded on the Cboe BZX Exchange. AMZP has a gross expense ratio of 115bps, waiving certain fees through September 30, 2026, for a net expense ratio of 99bps. AMZP’s fees are comparable to peer strategies—the YieldMax AMZN Option Income Strategy ETF (AMZY) and the Roundhill AMZN WeeklyPay ETF (AMZW).

AMZP currently has a low asset base of $19.63 million in net assets with an average of $471 thousand in share value changing hands on a daily basis at the time of writing. As a result of the low liquidity, AMZP exhibits a relatively wide bid/ask spread with a 30-day median rate of 0.27%.

Fund flows into AMZP have been relatively thin since inception, providing limited liquidity for those seeking to enter and exit a position in the ETF. While buy-write strategies have been gaining popularity in the market as alternatives to fixed income strategies, the market for single-stock strategies might be limited given the nature of the funds and the relatively high return of capital as a component of the distribution. Accordingly, the majority of AMZP’s distribution tends to be attributed to return of capital ("ROC") per the fund’s 19a-1 notices listed on the website.

While ROC can provide benefits to certain investors, particularly those seeking current income, ROC may result in a higher capital gains tax imposed on the investor upon closing a position. This is the result of ROC lowering the investment’s cost basis as a tax-deferred benefit. Once the cost basis reaches $0/share, ROC is taxed as short-term capital gains or as ordinary income. Given the high return of capital, investors should compare the performance of the fund on a total return basis rather than solely on price returns.

Monthly distributions have varied from period to period, providing investors with limited certainty for future cash flows. AMZP has paid out $5.30/share over the last twelve months for a yield of 19.98%.

AMZP employs a variety of options trading strategies in order to capitalize on AMZN shares no matter the market conditions. The strategy may utilize a synthetic covered call strategy, an uncovered call or put writing strategy, or a synthetic covered call spread strategy in order to gain indirect exposure to AMZN shares.

A synthetic covered call strategy is similar to a standard covered call strategy in which the fund will take a long call position in AMZN shares in order to gain upside exposure to AMZN shares while selling call options at a higher strike price in order to gain options premium. Synthetic covered calls may provide limited upside exposure given the performance cap resulting from the short call options. In addition to this, the strategy will exhibit the full downside exposure net of the premium earned on the sold call options with the risk of the long call options expiring worthless.

A synthetic covered call spread strategy is similar to a synthetic covered call strategy with the addition of taking an additional long position with a strike price above the short call options’ strike price. The call spread effectively provides the fund with protection in the event of a significant bull run in AMZN shares, allowing the fund to utilize the call options with the higher strike price to cover the short call options.

The uncovered call or put writing strategy would effectively provide the fund with price performance exposure and the full downside exposure as it relates to the short options positions. Relating to short call options, AMZP would have unlimited downside exposure; the short put options would limit downside exposure to 100%.

Investor Suitability

AMZP can be utilized by income-oriented investors seeking indirect exposure to the performance of AMZN shares. Given the high return of capital distribution, AMZP can potentially be used as a component of an investor’s monthly income without the need to rebalance. Given the capped upside potential, AMZP may not be appropriate for those seeking to capitalize on the AMZN shares as a long-term growth strategy.

Risks Related To AMZP

AMZP is an alternative investment strategy designed to provide indirect exposure to AMZN shares by employing one of a number of options trading strategies, exposing investors to certain risks that should be considered prior to making a final investment decision. AMZP’s performance may be capped given the covered call component of the synthetic covered call strategy; investors may be exposed to the full downside risk associated with the strategy. Given that AMZP has the flexibility to rotate between strategies, investors must remain cognizant of the exposure gained by investing in the fund to ensure that the strategy suits their risk profiles.

Distributions can vary from period to period, providing limited certainty for financial planning for income investors. Distributions are primarily derived from ROC and may be taxed as ordinary income and may not be suitable for tax-sensitive investors. With a low AUM, liquidity may present challenges for investors seeking to enter and exit a position.

Final Thoughts

AMZP was designed to provide investors with monthly income through the use of a number of options trading strategies. Given the low liquidity and flexibility to shift trading strategies, investors should use precaution when investing in AMZP.

This article answers three main questions about AMZP:

1. How does AMZP create income based on its underlying asset?
2. What risks accompany AMZP?
3. What is AMZP's performance affected by?

Editor's note: This article is intended to provide a general overview of the ETF for educational purposes only and, unlike other articles on Seeking Alpha, does not offer an investment opinion about the ETF.