What is a poor man’s covered call?
A poor man’s covered call (PMCC) is an options strategy that aims for covered-call-style income without buying 100 shares of stock.
Instead of owning the shares, you buy a longer-dated call option (often a LEAP) as a stock substitute. Then you sell a shorter-dated call against it to collect premium.
Same idea as a covered call: you’re trading some upside for income. Different capital requirement: the LEAP usually costs far less than buying 100 shares.
Why traders use a PMCC
- Less cash tied up. Buying a deep-in-the-money LEAP can take a lot less capital than owning 100 shares, which is why people talk about capital efficiency with PMCCs.
- Defined downside on the long call. Your risk on the stock substitute is mainly what you paid for the LEAP (plus commissions/fees), not the full share purchase.
- Income from the short call. Selling weekly or monthly calls against the LEAP can bring in premium while you hold the longer-term position.
A PMCC is still options trading. It can lose money. It is not “covered call with training wheels.”
PMCC vs a regular covered call
| Strategy | Long leg | Short leg | Capital | Upside | Complexity |
|---|---|---|---|---|---|
| Covered call | 100 shares | Shorter call | Full share cost | Capped by short call | Simpler |
| Poor man’s covered call | Longer-dated call (often a LEAP) | Shorter call | Mostly the LEAP debit | Also capped/managed by short call | More moving parts (deltas, rolls, assignment risk on the short call) |
If you already love covered calls but hate parking so much cash in one name, PMCC is the version many traders look at next.
The basic PMCC structure
- Buy a longer-dated call, often deep in the money, with enough delta that it behaves somewhat like stock.
- Sell a nearer-dated call at a higher strike to collect premium.
- Manage the short call as it approaches expiration (take profit, roll, or let it expire) while the LEAP remains your longer-term vehicle.
Exact strikes, deltas, and expirations depend on the ticker, volatility, and your risk tolerance. There is no single “correct” PMCC setup.
What to watch before you trade one
- Extrinsic value on the LEAP: Time value can decay, so compare the premium above intrinsic value and understand how much of your debit is exposed to time decay.
- Delta/moneyness: A deeper-in-the-money LEAP with a higher delta generally tracks the shares more closely, but it can require more capital.
- Short-call strike and income: Balance the premium you collect against the probability of the call finishing in the money and the upside you are willing to cap.
- Earnings and events: Earnings, product news, and other catalysts can expand volatility and move the underlying quickly, changing both legs of the position.
- Assignment and early exercise: The short call can be assigned, including before expiration in some circumstances. Know your broker’s process and have a plan for rolls, assignment, and the LEAP.
Try the free PMCC Trade Analyzer
Want to pressure-test a setup before you trade it? Get free access to the PMCC Trade Analyzer and model the LEAP debit, short-call premium, and different price paths before you enter.
Disclaimer
This is educational content, not investment advice. Options involve risk and are not suitable for everyone. Past results do not guarantee future outcomes. Do your own research and consider talking with a licensed advisor before trading.