A poor man’s covered call (PMCC) is a two-leg options strategy that mimics a covered call but replaces the stock position with a long deep-in-the-money call option, typically a LEAPS contract. The result is a capital-efficient way to collect short-call premium without buying 100 shares outright.

Because the long LEAPS call moves closely with the underlying stock, the trade behaves like a covered call while tying up a fraction of the capital. That tradeoff is the whole point: you get most of the covered call income with a fraction of the buying power requirement.

What Is a Poor Man’s Covered Call?

A PMCC combines two positions:

1. Long deep-in-the-money LEAPS call, typically 6 to 12 months to expiration with a delta of 0.70 or higher. This acts as your stock substitute.
2. Short near-term out-of-the-money call, typically 21 to 45 days to expiration. This is the premium you collect each cycle.

The strategy is technically a diagonal call spread. You pay a net debit upfront for the LEAPS leg, then collect premium from the short call each time it expires or you close it.

Because the LEAPS call has a high delta, it gains value as the stock rises, similar to owning shares. The short call caps your upside above its strike but generates premium income in the meantime.

PMCC Payoff: Max Profit, Max Loss, and Breakeven

Max profit occurs when the stock rises to the short call strike at expiration. It equals:

(Short call strike – Long call strike) + (Short call premium collected – Long call cost)

This is also expressed as: width of strikes minus net debit paid.

Max loss is the net debit paid for the LEAPS call minus any premium collected from short calls over the life of the position. This happens if the stock falls significantly.

Breakeven at entry equals: Long call strike + Net debit paid

For example: buy a LEAPS call at a $40 strike for $8.50, sell a $50 call for $1.20. Net debit = $7.30. Breakeven = $40 + $7.30 = $47.30.

Use the free PMCC calculator to model your exact strikes, premiums, and breakeven before placing the trade.

How to Set Up a PMCC Step by Step

1. Pick a bullish underlying. PMCC works best when you expect the stock to trend higher or stay flat. Stocks with a clear directional trend and moderate implied volatility tend to work well.
2. Buy the LEAPS call. Select a strike at 0.70 delta or higher, expiration 6 to 12 months out. A deeper in-the-money strike tracks stock movement more closely and gives more room for the short call.
3. Sell the near-term call. Pick an out-of-the-money strike, typically 0.25 to 0.35 delta, with 21 to 45 days to expiration. This premium offsets your LEAPS cost over time.
4. Manage the position. When the short call expires or reaches 50% of max profit, close it and sell a new one. Repeat until the short calls have reduced most of your LEAPS cost basis.

The diagonal spread calculator shows the full risk profile if you want to see the P&L at different stock prices and dates.

When to Use a Poor Man’s Covered Call

You are bullish but capital-constrained. Buying 100 shares of a $200 stock costs $20,000 in a standard covered call. The PMCC alternative might cost $1,500 to $3,000, depending on how deep in the money the LEAPS strike is.

You want premium income each cycle. By selling a new short call each cycle, the PMCC generates premium income each time the short call expires. Each cycle that expires worthless reduces your effective cost basis on the LEAPS.

Implied volatility is elevated on near-term options. When short-term IV is high relative to long-term IV, the short call premium is richer relative to the LEAPS cost. That improves the risk-reward ratio of entering the trade.

PMCC vs. Covered Call: The Key Difference

Both strategies sell a call against a long bullish position. The difference is capital.

A covered call requires 100 shares of stock as the long leg. A PMCC uses a LEAPS call instead. The LEAPS moves similarly to shares for moderate price moves, thanks to its high delta, but costs far less upfront.

The tradeoff: the LEAPS introduces theta decay on the long leg and requires more active management. If the stock drops sharply, the LEAPS loses value faster than a stock position would on a percentage basis.

For a full breakdown of both strategies side by side, see the covered call vs PMCC comparison.

Model Your PMCC Before You Trade

The PMCC strategy rewards careful setup. Even small changes to the long call strike or short call expiration can shift your breakeven and max profit significantly.

Use the poor man’s covered call calculator to enter your specific strikes, premiums, and expirations. It calculates max profit, max loss, and breakeven instantly so you know your exact risk before placing the trade.

Options trading involves risk of loss. Model your trade before entering and size positions according to your risk tolerance.