Poor Man's Covered Call (PMCC)

The poor man's covered call lets you replicate the covered call strategy without owning 100 shares. Instead, you use a LEAPS (Long-term Equity Anticipation Security) option.

How PMCC Works

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Instead of owning stock:

  • Buy a LEAPS call - Deep in-the-money, 1+ year to expiration
  • Sell short-term calls - Against your LEAPS position

    • Why Use PMCC?

  • Less capital required - LEAPS costs fraction of 100 shares
  • Similar returns - Percentage returns can exceed covered calls
  • Leverage - Control 100 shares for less money

    • Example: NVDA PMCC

    Traditional Covered Call:

  • Buy 100 NVDA shares: $14,000
  • Sell $145 call: +$325

    • Poor Man's Covered Call:

  • Buy NVDA $100 LEAPS (1 year): $4,500
  • Sell $145 monthly call: +$325

    • Same premium income with ~68% less capital!

    PMCC Rules

  • LEAPS delta: 0.70 or higher (deep ITM)
  • LEAPS expiration: 1+ year out
  • Short call strike: Above your LEAPS strike
  • Short call expiration: 30-45 days

    • Risks of PMCC

  • LEAPS can lose value if stock drops significantly
  • No dividend income (you don't own shares)
  • More complex to manage than traditional covered calls