Options Strategy Guide
Synthetic Covered Call
Covered call income without owning the actual shares.
Advanced
Neutral to Slightly Bullish
Similar to covered call — capped upside, significant downside
The Simple Version
Plain English — no jargon
A regular covered call means buying 100 shares (expensive) and selling a call on them. A synthetic covered call replaces the 100 shares with a deep in-the-money LEAP call option that behaves almost like shares. You then sell a short-dated call on top. Same income, much less capital needed.
How It Works — Step by Step
- 1 Buy a deep ITM LEAP call (long-dated, high delta — acts like stock)
- 2 Sell a short-dated OTM call against it to collect premium
- 3 Collect premium from the short call each month as it expires
- 4 Repeat by selling new short calls as old ones expire
- 5 The LEAP provides stock-like exposure; short calls generate income
Real Example
GOOGL
Illustrative example — not a recommendation
Stock Price
$175.0
Strike Price
$180.0
Premium Collected
$2.2/share
Days to Expiration
30d
Max Profit
$720
Breakeven
$177.8
Annualized Return
18.9%
When to Use It — and When Not To
✓ Use when
- You want covered call income with less capital than buying shares
- You are mildly bullish over the long term
- LEAPS are reasonably priced
✗ Avoid when
- You are strongly bullish — upside is capped by short call
- Very high IV makes the LEAP expensive
- You don't want to actively manage monthly short calls
Greeks & Mechanics (for the experienced trader)
Delta
Net positive — high delta LEAP minus short call delta.
Theta
Net slightly negative — LEAP decay is partially offset by short call income.
Vega
Net positive — LEAP has more vega than short call.
Gamma
Low — LEAP is deep ITM and reacts smoothly to moves.
Key Risks
- LEAP loses value if stock falls — same downside as covered call
- If stock drops sharply, LEAP value evaporates quickly
- Requires understanding of diagonal spread management
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