Options Strategy Guide
Poor Man's Covered Call (PMCC)
A covered call without buying 100 shares first.
Intermediate
Neutral to Slightly Bullish
Defined risk, lower capital than true covered calls
The Simple Version
Plain English — no jargon
A normal covered call costs a lot — you need to buy 100 shares first. The PMCC is the discount version. Instead of buying 100 shares, you buy a deep-in-the-money call option that acts almost like owning shares. Then you sell a short-dated call on top of it to collect premium. You get most of the covered call income with a fraction of the capital.
How It Works — Step by Step
- 1 Buy a deep in-the-money (ITM) call with a long expiration (LEAP — 6-12+ months out)
- 2 This LEAP acts as a stock substitute (high delta, low cost vs. 100 shares)
- 3 Sell a short-dated out-of-the-money (OTM) call against it to collect premium
- 4 Repeat: as the short call expires, sell another one to keep collecting premium
- 5 The LEAP loses value slowly; the short calls you sell fund it over time
Real Example
SPY
Illustrative example — not a recommendation
Stock Price
$550.0
Strike Price
$560.0
Premium Collected
$3.8/share
Days to Expiration
30d
Max Profit
$1380
Breakeven
$556.2
Annualized Return
22.1%
When to Use It — and When Not To
✓ Use when
- You want covered call income without buying 100 shares
- You are mildly bullish on the stock over the long term
- You want to reduce capital requirement vs. a true covered call
- LEAPS are reasonably priced (IV not too high)
✗ Avoid when
- The stock is very volatile — risk of losing the LEAP value quickly
- You are very short-term in your outlook
- The spread between LEAP and short call is negative (net debit exceeds potential)
- You need maximum simplicity — PMCC requires active management
Greeks & Mechanics (for the experienced trader)
Delta
Net positive — the long LEAP has high delta, short call reduces it slightly.
Theta
Net negative on the LEAP, positive on the short call. Short call income offsets LEAP decay.
Vega
Net positive — the long LEAP benefits from rising IV more than the short call hurts.
Gamma
Low — the LEAP is deep ITM and reacts less dramatically to moves.
Key Risks
- LEAP loses value over time if stock stays flat — theta drag on the long leg
- If stock drops sharply, the LEAP loses significant value
- Max loss = net debit paid for the LEAP minus all premium collected from short calls
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