Defiance Daily Target 2x Short MSTR ETF (SMST) Covered Calls

The Defiance Daily Target 2X Short MSTR ETF is an actively managed leveraged inverse ETF that seeks to provide twice the inverse (-2x) daily performance of MicroStrategy Inc. (MSTR). Through the use of swap agreements with institutional counterparties, the fund allows sophisticated traders to capitalize on price declines in the leading corporate Bitcoin holder. As a geared vehicle, it resets daily and is subject to compounding and volatility decay over longer holding periods.

You can sell covered calls on Defiance Daily Target 2x Short MSTR ETF to lower risk and earn monthly income. Born To Sell's covered call screener gives you customized search capabilities across all possible covered calls but here are a couple of examples for SMST (prices last updated Mon 4:16 PM ET):

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Defiance Daily Target 2X Short MSTR ETF is a specialized tactical vehicle designed to deliver -200% of the daily share price performance of MicroStrategy Inc. (MSTR). Positioned as a "bearish force multiplier," SMST allows professional traders to express a high-conviction negative view on the world’s largest corporate Bitcoin treasury or to hedge long positions in the digital asset sector. In late 2024, the fund increased its leverage target from -1.5x to -2x to remain competitive in the aggressive single-stock inverse market of 2026.

Core Strategy and Operations

1. Synthetic Short Mechanism: The fund achieves its -2x objective primarily through total return swap agreements. In 2026, SMST utilizes a diverse group of institutional counterparties—including BMO, Cantor Fitzgerald, and Marex—to maintain deep liquidity and minimize tracking error. These swaps are adjusted daily to ensure the fund’s notional exposure remains at approximately -200% of its net assets.
2. Daily Rebalancing and Compounding: Because the fund resets its inverse leverage at the end of each trading day, it is intended for short-term tactical use. Over periods longer than a single day, the effects of compounding and "volatility drag" can cause performance to deviate significantly from -2x the cumulative return of the underlying stock.
3. Collateral and Income: SMST maintains a substantial portfolio of cash and short-term U.S. Treasury bills to back its derivative obligations. This collateral generates interest income that partially offsets the fund’s 1.29% expense ratio, providing a slight buffer during periods of high interest rates.

Competitive Landscape

SMST is a primary choice for bearish traders navigating the crypto-equity space. It competes directly for volume with the T-Rex 2X Inverse MSTR Daily Target ETF, which also provides -2x daily exposure. For less aggressive hedging, it is often compared to the ProShares Short Bitcoin ETF. On the bullish side, it is frequently used in "pair trades" alongside the Defiance Daily Target 2X Long MSTR ETF or the GraniteShares 2x Long COIN Daily ETF. It also sits in the same "volatility harvesting" ecosystem as the YieldMax MSTR Option Income Strategy ETF.

Strategic Outlook and Innovation

In 2026, SMST has become a cornerstone for "risk-off" strategies within the NASDAQ. Following a series of reverse splits in 2025 aimed at maintaining a high nominal trading price and improving bid-ask spreads, the fund has seen increased adoption by institutional desks. A key strategic focus for Defiance is the management of the "cost of carry" in the swap market, ensuring that the fund remains a cost-effective alternative to traditional short-selling. Innovation is focused on the liquidity of the SMST options chain, which has become a preferred venue for professional traders executing "gamma-neutral" bearish strategies. As the Bitcoin treasury model continues to drive extreme volatility in MicroStrategy, SMST remains the benchmark for those seeking to capitalize on the downside of the most reflexive stock in the crypto-equity landscape.

Want more examples? SMSI Covered Calls | SMTC Covered Calls