Equity : Equity Option Funds

About Equity Option Funds

Options are contracts that give the holder the right to buy (call options) or sell (put options) a fixed amount of a particular stock at a specified price within or at a specified time. The price of an option is called its premium. More volatile markets generally lead to higher option premiums. Listed index options are standardized contracts. An index call option buyer pays a premium and receives the right to profit if the index exceeds the option's specified index value — the option strike price. The index call option seller receives the premium — and if the index level increases, must be ready to pay the buyer the amount by which the actual index exceeds the specified option index value — the option strike price - on the option settlement date.

Equity option strategies combine investments in a portfolio of stocks with selling and buying options on either individual stocks in the portfolio or on specified stock indexes.

About Nuveen Equity Option Funds

Investing in both equity (stocks) and equity index options, Nuveen's equity option funds seek to provide high current income and capital appreciation potential to help investors secure their investment goals. Each fund purchases a portfolio of stocks intended to substantially match the price movements of the specified indexes.  The portfolio manager sells call options on the specified indexes, to try to generate premium income and try to mitigate losses in falling stock markets.

The funds seek to generate cash flow from their total return, which includes:

  • Dividends;
  • Net call option position (call premium received less difference between current and strike price of the underlying asset);
  • Stock portfolio appreciation/depreciation, and;
  • Expenses.
  • Some funds may also seek additional economic exposure through purchasing total return swaps. This economically results in a leveraged fund investment.

Investor Profile

Are these CEFs right for you?

The features and investment objectives of these funds might be especially appealing to investors seeking:
  • Attractive regular distributions;
  • Capital appreciation, consistent with the funds' index option strategy;
  • Mitigation of losses in rapidly declining markets.

What are potential risks?

  • Equity option strategies carry common stock risks, including high return volatility and the risk that an adverse event may significantly affect an individual stock.
  • Several Nuveen equity option strategies use index call options, which are settled in cash. The fund cannot provide for its potential settlement obligation by acquiring and holding the underlying securities.

In this section

Equity Option Closed-End Funds

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