What is a poor man's covered call?

A poor man's covered call (PMCC) uses a deep ITM LEAPS call option instead of 100 shares of stock, combined with selling a short-term OTM call. It replicates covered call income with 60-70% less capital. For example, instead of spending $15,000 on 100 shares of a $150 stock, you spend $4,400-$5,000 on a LEAPS and generate the same monthly premium from selling short calls.

How much money do you need for a poor man's covered call?

Typically 25-40% of what shares would cost. For a $150 stock, a PMCC requires $4,000-$6,000 per contract (LEAPS cost minus first short premium) vs. $15,000 for shares. This makes the strategy accessible for expensive stocks. Minimum account size for a single PMCC position is about $3,000-$5,000 depending on the stock price and LEAPS cost.

Is the poor man's covered call risky?

The PMCC has defined risk: you can lose the entire LEAPS investment if the stock drops below the LEAPS strike at expiration. Unlike stock, which always has some value, a call option can expire worthless. However, the dollar amount at risk is much smaller than owning shares. A $4,400 PMCC max loss vs. a potential $15,000 loss on shares (if stock goes to zero). Use stop-losses at 30-40% loss on the LEAPS to limit actual losses.

Can you do a poor man's covered call in an IRA?

Yes, most brokers allow PMCCs (also called long call diagonal spreads) in IRA accounts. The strategy is considered a defined-risk spread, which is generally permitted. You need Level 2 or Level 3 options approval depending on the broker. Check with your specific broker for approval requirements. The tax-advantaged treatment makes IRAs ideal for PMCCs since you avoid the frequent short-term gains taxation.

What is the best LEAPS delta for a PMCC?

Use a LEAPS with delta of 0.80 or higher. This ensures the LEAPS moves nearly dollar-for-dollar with the stock, closely replicating stock ownership. A 0.80 delta LEAPS is typically 20-25% in-the-money. Higher deltas (0.85-0.90) are more expensive but have less extrinsic value to decay. Lower deltas (0.70-0.75) are cheaper but behave less like stock and have more time value at risk.

Poor Man's Covered Call Strategy

What Is the Poor Man's Covered Call (PMCC)?

The poor man's covered call (PMCC) is a capital-efficient options strategy that substitutes a deep in-the-money LEAPS call option for stock ownership. Instead of buying 100 shares and selling a call against them, you buy a LEAPS call with high delta (0.80+) and sell a shorter-term call at a higher strike. This diagonal spread mimics the profit characteristics of a traditional covered call while requiring 60-70% less capital. The name "poor man's" refers to the reduced capital requirement, not the quality of the strategy.

The PMCC has become one of the most popular strategies among retail options traders because it democratizes covered call writing. A stock trading at $150 requires $15,000 per contract for traditional covered calls. With a PMCC, you might invest $4,400-$5,000 (LEAPS cost minus short premium), making it accessible to accounts of all sizes. The strategy generates monthly income from the short call while the LEAPS provides the underlying exposure. Professional traders also use PMCCs to leverage their capital across more positions.

The PMCC Rule of Thumb

A well-constructed PMCC uses a LEAPS with at least 0.80 delta (20-30% ITM), 12+ months to expiration, and a short call with 30 DTE at 3-5% OTM. The short call strike must ALWAYS be above the LEAPS breakeven (LEAPS strike + LEAPS cost - accumulated premiums).

PMCC Return Calculation

Net Capital Required

Capital = (LEAPS Cost - Short Premium) × 100 × Contracts

Where:

LEAPS Cost = Price per share for the LEAPS

Short Premium = Premium received from the short call

Contracts = Number of positions

PMCC Breakeven

Breakeven = LEAPS Strike + LEAPS Cost - Accumulated Short Premiums

Where:

LEAPS Strike = Strike of the long LEAPS call

LEAPS Cost = Price paid for the LEAPS

Accumulated Short Premiums = Total premiums collected from short calls over time

PMCC Example

Given

Stock

$150

LEAPS

$110 strike, $48.00 cost, 365 DTE

Short Call

$158 strike, $4.00 premium, 30 DTE

Calculation Steps

1Net capital = ($48.00 - $4.00) × 100 = $4,400
2Capital for shares = $150 × 100 = $15,000
3Capital savings = 1 - ($4,400/$15,000) = 70.7%
4LEAPS breakeven = $110 + $48.00 = $158.00
5After first short premium: $158 - $4 = $154
6Max profit per cycle = ($158 - $110 - $48 + $4) × 100 = $400
7Monthly yield = $400 / $4,400 = 9.09%
8Annualized = 9.09% × (365/30) = 110.6%

Result

The PMCC requires only $4,400 vs. $15,000 for shares (70.7% savings). Monthly income is $400, yielding 9.09% per month or 110.6% annualized on invested capital. After 12 monthly cycles, accumulated premiums would total approximately $4,800.

PMCC vs. Traditional Covered Call

PMCC vs. Traditional Comparison ($150 Stock)
Feature	Traditional CC	PMCC	Advantage
Capital required	$15,000	$4,400	PMCC (70% less)
Monthly income	$400	$400	Equal
Return on capital	2.67%/mo	9.09%/mo	PMCC (3.4x higher)
Dividends	Yes (~$50/qtr)	No	Traditional
Max loss	$15,000 (stock to 0)	$4,400 (LEAPS to 0)	PMCC (lower dollar loss)
Time decay risk	None on stock	LEAPS decays slowly	Traditional
Complexity	Simple	Moderate	Traditional

Building a Profitable PMCC

PMCC Construction Guide

Select a Quality Underlying

Choose a stock with upward or neutral bias, liquid options, and moderate IV. Avoid highly volatile or declining stocks since LEAPS can lose significant value in downturns.

Buy Deep ITM LEAPS (12-24 months)

Purchase a LEAPS call with delta 0.80+ (20-30% ITM). Choose 12-24 month expiration. Ensure the LEAPS has minimal extrinsic value (less than 15% of total cost). This minimizes the time decay cost on your long position.

Sell Monthly OTM Call Above Breakeven

Critical: sell the short call at a strike ABOVE your LEAPS breakeven. If LEAPS breakeven is $158, sell the $160 or higher. This ensures profit if the short call is ITM at expiration.

Repeat Monthly

Each month, sell a new short call. As you collect premiums, your breakeven decreases, giving you more flexibility on strike selection. After 6 months, your breakeven may have dropped $20+.

Roll LEAPS Before 90 DTE

When the LEAPS reaches 90 days to expiration, time decay accelerates. Roll to a new 12-24 month LEAPS to reset the clock. This costs money but preserves the position quality.

PMCC is also called a diagonal spread or calendar spread variation
Best stocks for PMCC: AAPL, MSFT, GOOGL, AMZN, SPY, QQQ
LEAPS on most stocks are available in January cycles (Jan 2027, Jan 2028)
The strategy works in IRA accounts at most brokers
Close the entire position if the stock drops 20%+ below LEAPS strike
Tax treatment: each short call expiration is a separate taxable event

Assignment Risk

If assigned on the short call, you do NOT own shares. You must exercise the LEAPS or buy shares to fulfill the obligation. Most brokers handle this automatically, but it can create margin issues. To avoid assignment complications, buy back short calls that are ITM before expiration.

Poor Man's Covered Call Strategy Calculator

Input Values

Results

What Is the Poor Man's Covered Call (PMCC)?

PMCC Return Calculation

PMCC vs. Traditional Covered Call

Building a Profitable PMCC

PMCC Construction Guide

Frequently Asked Questions

Sources & References

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