What Is a Poor Man's Covered Call?

A poor man's covered call (PMCC) replaces the 100 shares of stock in a traditional covered call with a deep in-the-money LEAPS call. You then sell short-term out-of-the-money calls against it, just like you would against shares.

The result: a covered call position that requires 70-85% less capital.

The Setup

Traditional covered call:

  • Buy 100 shares of AAPL at $210 = $21,000
  • Sell 1 monthly $220 call for $3.50 = $350 income

    • Poor man's covered call:

  • Buy 1 LEAPS call, $170 strike, Jan 2028, delta ~0.85 = ~$4,800
  • Sell 1 monthly $220 call for $3.50 = $350 income

    • Same income ($350/month), but $4,800 capital instead of $21,000. That is the appeal.

    How to Structure the LEAPS Leg

    Your LEAPS call is the foundation. Get this wrong and the entire strategy suffers.

    Strike selection: Go deep in-the-money. Target a delta of 0.80 or higher. The strike should be far enough below the current stock price that the LEAPS has mostly intrinsic value and minimal time value erosion.

    Expiration: At least 18 months out. You need time for the LEAPS to hold its value while you sell multiple cycles of short calls against it.

    Cost check: Calculate the extrinsic (time) value you are paying. If the LEAPS costs $48 and the intrinsic value is $40, you are paying $8 in time value. That is reasonable. If the time value is $15+, you might be paying too much.

    How to Structure the Short Call

    Strike selection: Choose a short call strike above the current stock price. A delta of 0.20-0.30 is typical, giving you a 70-80% probability of the short call expiring worthless.

    Expiration: 30-45 days is standard. This is where theta decay works in your favor on the short side.

    Income target: Aim to collect 2-5% of the LEAPS cost per month in short call premium. On a $4,800 LEAPS, that is $96-240 per month.

    Managing the Position

    Short call expires worthless: Keep the LEAPS, sell another call next month. Short call is tested: Roll up and out for a credit, or close both legs for a profit. Stock drops: Short call expires worthless (good), LEAPS loses value (bad). Sell a new call at a lower strike or wait for a bounce.

    The Critical Rule: Short Strike Above Your LEAPS Cost Basis

    This is where beginners get burned. Your short call strike must be above your LEAPS breakeven price (LEAPS strike + premium paid). If you violate this rule, you can end up in a situation where the short call is assigned and you lock in a net loss.

    Example of the danger:

  • LEAPS: $170 strike, cost $48. Breakeven = $218.
  • Short call: $215 strike.
  • Stock rallies to $225. Short call is assigned.
  • You must sell at $215, but your effective cost is $218. Net loss of $3 per share ($300).

    • Always sell short calls above your breakeven. In this case, the short strike should be $220 or higher.

    Profit and Loss Scenarios

    Best case: Stock rises slowly to your short strike. You collect months of short call premium, then close the LEAPS at a profit.

    Good case: Stock rises modestly. Short calls expire worthless repeatedly. You collect steady income while the LEAPS appreciates.

    Bad case: Stock drops 15-20%. Your LEAPS loses value faster than the short call income can offset. You may need to hold through the downturn or cut losses.

    Worst case: Stock crashes 30%+. The LEAPS can go to zero if the stock drops enough, unlike shares which retain some value.

    PMCC vs Traditional Covered Call

    | Factor | Traditional CC | PMCC | Capital required$20,000+$4,000-6,000 Monthly incomeSimilarSimilar Return on capital1-2%/month3-7%/month | Downside risk | Full stock ownership | Limited to LEAPS premium |

    Start with one PMCC position to learn the mechanics. Track your net cost basis after each short call sale. Roll early when the short call moves in-the-money. OptionsPilot's covered call finder helps you identify optimal short call strikes to sell against your LEAPS.