# S&P 500 vs. Nasdaq-100 Covered Calls: How Do They Compare?

Source: https://www.vistashares.com/sp500-vs-nasdaq100-covered-calls/
Published: 2026-11-13 | Updated: 2026-11-13

By Adam Patti, Chief Executive Officer, VistaShares | November 2026

Covered call strategies on the S&P 500 and the Nasdaq-100 work the same way, but they differ because their underlying indexes do: the Nasdaq-100 is more concentrated in technology and growth companies and has historically shown higher volatility, so options on it usually carry more premium. That higher premium comes with larger price swings and, in strong technology rallies, more upside given up. The choice between the two affects a fund's income, sector exposure and behavior in different markets.

## How do the two indexes differ?

**S&P 500.** About 500 large U.S. companies across all 11 sectors, selected by a committee and weighted by float-adjusted market value.

**Nasdaq-100.** The 100 biggest nonfinancial companies listed on the Nasdaq Stock Market, weighted by a modified market value method. It excludes banks and other financial companies and is heavily weighted toward information technology, communication services and consumer companies.

The indexes overlap substantially, since many of the biggest U.S. companies are in both. But the Nasdaq-100 has fewer holdings and a heavier technology weighting, so its returns depend more on a narrower group of companies. Our article on [ETF concentration risk](https://www.vistashares.com/etf-concentration-risk/) explains why that matters.

## Why do Nasdaq-100 options usually carry more premium?

Option premium rises with implied volatility. Because the Nasdaq-100 is more concentrated and more growth oriented, its expected price swings are generally larger. Cboe publishes the Nasdaq-100 Volatility Index (VXN) alongside the VIX for the S&P 500. Based on Cboe data, the VXN exceeded the VIX by an average of about 4.4 points over the five years through June 2026, and by about 10.7 points on June 30, 2026, a level in the 91st percentile since 2001.[1]

Using a common approximation, a one-month at-the-money option is worth about 0.4 times implied volatility times the square root of one-twelfth. At 16% implied volatility, that is about 1.8% of the index; at 22%, about 2.5%. (Hypothetical approximation, before fees and expenses, ignoring interest rates and dividends.)[2] Our article on [implied volatility and option income](https://www.vistashares.com/implied-volatility-option-income/) explains the relationship.

## How do outcomes differ?

**In flat or modestly rising markets,** a Nasdaq-100 covered call strategy collects more premium and may produce more income.

**In strong rallies led by technology,** the Nasdaq-100 strategy gives up more upside, because the index's gains above the strike can be larger.

**In declines,** the Nasdaq-100 strategy's higher premium offsets more of each month's loss, but the index can also fall further, particularly in technology sell-offs.

**Over time,** results depend on the path of each index, the volatility environment and the fund's design choices, including overwrite level and strikes. Our article on [covered call ETFs in falling, flat and rising markets](https://www.vistashares.com/covered-call-etfs-in-falling-flat-rising-markets/) covers these scenarios in more detail.

## What about dividends?

The S&P 500 has generally paid a higher dividend yield than the Nasdaq-100, because it includes more mature companies in sectors such as financials, utilities and energy. For covered call funds, dividends from the underlying stocks add to income alongside option premium. Lower dividends in the Nasdaq-100 mean more of a fund's income may depend on option premium.

## How does concentration affect the strategy?

Concentration cuts both ways for a covered call strategy. When a few large technology companies drive the market higher, a Nasdaq-100 covered call fund gives up more of those gains above its strikes. When those same companies fall together, the index can decline sharply, and option premium offsets only part of the loss. The S&P 500's broader sector mix tends to spread risk across more industries, which generally lowers volatility and premium. Investors who already own large technology positions through other funds may find that a Nasdaq-100 covered call fund adds to an existing concentration rather than diversifying it.

## How are the options taxed?

Options on the S&P 500 index and the Nasdaq-100 index are cash-settled, European-style contracts, and gains and losses on certain broad-based index options are generally taxed under Section 1256 of the Internal Revenue Code as 60% long-term and 40% short-term capital gain or loss, regardless of holding period.[3] Options on ETFs that track these indexes generally do not receive Section 1256 treatment. A fund's distribution character also depends on dividends, other gains and losses and any return of capital, which is a tax classification that reduces cost basis rather than being taxed as income when received. Our article on [how covered call ETFs are taxed](https://www.vistashares.com/how-are-covered-call-etfs-taxed/) covers the details.

## How should investors compare funds?

**Underlying index.** Decide which index exposure fits the portfolio, including sector weights and concentration.

**Overlap with existing holdings.** Many portfolios already hold large positions in the biggest technology companies. Our article on [ETF portfolio overlap](https://www.vistashares.com/etf-portfolio-overlap/) explains how to check.

**Design.** Compare overwrite levels, strike selection, expirations and whether the fund uses index options or options on ETFs or single stocks.

**Total return and distributions.** Review both, over the same periods.

**Costs.** Compare expense ratios and trading spreads. Our article on [how to compare covered call ETFs](https://www.vistashares.com/how-to-compare-covered-call-etfs/) offers a broader checklist.

## Frequently asked questions

### Which index pays more option premium?

The Nasdaq-100 usually does, because its implied volatility, measured by the VXN, has typically been higher than the S&P 500's, measured by the VIX. Higher implied volatility means higher option prices. The gap varies over time and was unusually wide in mid-2026. Higher premium reflects higher expected price swings, so it comes with greater risk.

### Is a Nasdaq-100 covered call fund riskier?

Generally, the underlying exposure is more volatile and more concentrated, since the Nasdaq-100 holds fewer companies with a heavy technology weighting. Option premium offsets part of declines, but it does not remove the risk of larger losses in technology sell-offs. Risk also depends on fund design, including overwrite level and strikes, so comparing specific funds is important.

### Do the two indexes hold the same companies?

They overlap substantially. Most Nasdaq-100 companies are also in the S&P 500, and the biggest U.S. companies by market value appear in both. The S&P 500 also includes many companies listed on the New York Stock Exchange and companies in sectors the Nasdaq-100 excludes, such as banks. Their weightings and sector mixes differ as a result.

### Why does the Nasdaq-100 exclude financial companies?

The Nasdaq-100 is defined by its methodology to include the biggest nonfinancial companies listed on the Nasdaq Stock Market. Financial companies, such as banks and insurers, are tracked by a separate Nasdaq financial index. As a result, the Nasdaq-100 has no exposure to that sector, which contributes to its heavier weighting in technology, communication services and consumer companies.

### Are options on both indexes taxed the same way?

Options on the S&P 500 index and the Nasdaq-100 index are generally treated as broad-based index options eligible for Section 1256 treatment, taxed as 60% long-term and 40% short-term capital gain or loss and marked to market at year-end. Options on ETFs tracking these indexes generally are not. Investors should consult a tax advisor about their situation.

### Can a portfolio use both?

Yes. Some investors hold covered call funds on both indexes to diversify their option income sources, or combine a covered call fund with traditional index funds. Doing so requires attention to overlap, since the indexes share many large holdings, and to how the combination affects overall sector concentration and income. A financial advisor can help evaluate the mix.

## NOTES

- Cboe Nasdaq-100 Volatility Index (VXN) and Cboe Volatility Index (VIX) daily closes, Federal Reserve Bank of St. Louis FRED series VXNCLS and VIXCLS, July 1, 2021, through June 30, 2026; VistaShares calculation of the average spread, the June 30, 2026 spread and its percentile since 2001.
- Calculations are VistaShares illustrations using a standard approximation for at-the-money option prices.
- Internal Revenue Code Section 1256; IRS Publication 550, "Investment Income and Expenses."

## IMPORTANT INFORMATION

This material is provided for educational purposes only. It is not investment, legal or tax advice, and it is not a recommendation or an offer to buy or sell any security. Information is drawn from sources believed to be reliable as of the date of publication, is not guaranteed as to accuracy or completeness, and may change without notice. Figures attributed to third parties are their estimates. Projections and forecasts are not guarantees of future results. Investors should consult their own financial, legal and tax professionals before making investment decisions. Investments involve risk, including possible loss of principal. Strategies that use options involve additional risks, including limited participation in market gains, the risk that options do not perform as intended, and changes in distributions. Tax treatment depends on individual circumstances and on current law, which may change.