Down 50%, Is PYPY a Lost Cause or a Hidden Opportunity?

• YieldMax PYPL Option Income Strategy ETF (PYPY) — delivers a 72% yield on weekly distributions despite the fall in PayPal stock.

• The PYPY compound call strategy benefits when PayPal recovers but pulls the full downside, limiting upside potential.

• About 93% of distributions are refunds, not income, eroding the cost base and creating future tax liabilities.

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YieldMax PYPL Option Income Strategy ETF (NYSEARCA:PYPY) delivered weekly earnings while its underlying stock fell. The result is a fund that looks like a disaster on the price chart but tells a much more complicated story when you consider what investors have accumulated.

PYPY does not directly hold PayPal stock. It uses a covered call strategy: it gains exposure to PayPal Holdings through options while selling call options on that exposure for weekly income. The call premiums are distributed to the stockholders, generating the underlying yield. The tradeoff is in order. By selling calls, the fund offsets how much it earns when PayPal makes rounds. When PayPal collapses, the fund takes the full fall, with a small option premium cushion to cover the damage.

READ: The analyst who called NVIDIA in 2010 recently named his top 10 AI stocks

This is the main tension in every single YieldMax stock fund: the income is real and weekly, but it doesn’t protect the principal. The fund has been active since September 25, 2023, and its total assets are estimated at $24.3 million, which is a small pool that reflects the attractiveness of the fund.

PayPal has been one of the worst fintech big-cap stories of the past few years, and that’s the main drag on PYPY. Over the past year, PayPal shares have fallen 20%, and in five years, the stock is down more than 82%. The company missed Q4 2025 earnings expectations, announced the departure of CEO Alex Chriss, and withdrew its 2027 financial goals in a single announcement that wiped out more than $10 billion in shareholder value. Multiple security-class criminal charges followed, with a lead plaintiff deadline of April 20, 2026.

For a wallet whose entire return engine depends on PayPal’s price stability, that background is punishing. PYPY is down 49% over the past year.

The distribution rate of the fund is large. Compared to an average yield of 72%, the ETF is actually down just 23% over the past year in terms of return, which is worse than holding PayPal directly. Investors who only focus on the price chart miss the arrival of weekly checks in their trading accounts every time.

The most recent distribution on April 1, 2026, contained a return of 93.34% and a net income of 6.66%. An income tax refund is not taxed in the year received, but it reduces the cost basis, creating a tax liability down the road. A headline yield of 72% which is roughly the return on capital means the fund is returning your money to you, not generating 72% of the actual option premium.

PYPY’s bull case depends entirely on whether or not PayPal has found the bottom. On balance alone, the argument is compelling. PayPal trades at a trailing P/E of nearly 8x and a forward P/E of nearly 9x, levels that mean the market is pricing in a lot of bad news. Full-year 2025 non-GAAP EPS came in at $5.31, and the company generated $5.56 billion in free cash flow for the year. PayPal repurchased $6 billion worth of shares over the next twelve months and began its first quarterly distribution.

Retail investors have been wrestling with this question. The stock is trading near 2017 price levels despite years of revenue growth, which looks like value on paper. But free cash flow declined year over year in 2025 despite revenue growth, and FY 2026 EPS guidance suggests slightly negative growth. Cheap multiples in bonds remain a real risk if growth continues to disappoint.

1. Posted at the top when PayPal finally recovered: If PayPal makes a strong comeback, the structure of the combined calls means that PYPY will only capture part of that move. Investors who want full exposure to PayPal returns are better served holding the stock directly. PYPY is designed for income, not capital appreciation.

2. Recovery of capital complexity: A surprising majority of recent distributions are classified as capital returns, not investment income. This erodes the cost basis over time and creates deferred tax liabilities. Investors holding PYPY in a taxable account need to track this carefully.

3. Sideways is right here: If PayPal stops falling and trades less, PYPY’s premium engine can continue to distribute income without NAV erosion. The worst side effect of this bag is continued sliding, not stopping.

PYPY is for investors who believe PayPal has got it down and are comfortable accepting limited upside in exchange for weekly distributions. Price appreciation alone is unlikely to recover principal losses given the fund’s design. I would call this a lost cause.

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