A synthetic covered call — commonly called a "poor man's covered call" (PMCC) — replaces the 100 shares with a long-dated, deep in-the-money LEAPS call option. Instead of spending $20,000 on 100 shares of a $200 stock, you buy a LEAPS call for $4,000-$6,000 and sell short-term calls against it. Same income strategy, 70-80% less capital.

How It Works

Traditional covered call on AAPL at $210:

  • Buy 100 shares: $21,000
  • Sell 30-DTE $220 call: +$3.50 ($350)
  • Capital required: $21,000

    • Synthetic covered call on AAPL:

  • Buy 1 LEAPS $160 call, 18 months out: $58.00 ($5,800)
  • Sell 30-DTE $220 call: +$3.50 ($350)
  • Capital required: $5,800

    • Same $350 in short-term premium income. But on $5,800 of capital instead of $21,000. That's a 6% monthly return on capital versus 1.7% for the traditional approach.

    The Critical Rules

    Rule 1: Buy Deep ITM LEAPS (Delta 0.75+)

    Your LEAPS call must be deep in the money with a delta of at least 0.75. This ensures the LEAPS moves nearly dollar-for-dollar with the stock. A $160 LEAPS call on a $210 stock has $50 of intrinsic value and moves very closely with the shares.

    Rule 2: LEAPS Expiration Must Be 6+ Months Beyond Short Call

    If you're selling monthly calls, your LEAPS should expire at least 12-18 months out. This gives you time to sell multiple rounds of short calls against the single LEAPS position.

    Rule 3: Short Call Strike Should Exceed LEAPS Cost Basis

    Your short call strike must be above your LEAPS breakeven. If you paid $58 for the $160 LEAPS, your breakeven is $218. Selling calls below $218 means your max profit is negative if both options get assigned.

    Safe short call strike: $220+ (above the $218 breakeven)

    P&L Scenarios

    LEAPS: $160 call bought for $58 ($5,800) Short call: $225 sold for $3.50 ($350)

    AAPL at $230 at short call expiration:

  • Short call assigned: obligation to sell at $225
  • LEAPS value: ~$70 ($7,000)
  • P&L: $225 - $160 - $58 + $3.50 = +$10.50 ($1,050) max profit

    • AAPL stays at $210:

  • Short call expires worthless: +$350
  • LEAPS value: ~$57 (slight time decay)
  • P&L: +$350 - $100 (LEAPS theta) = +$250 net

    • AAPL drops to $180:

  • Short call expires worthless: +$350
  • LEAPS value: ~$35 ($3,500)
  • P&L: +$350 - $2,300 (LEAPS loss) = -$1,950

    • The downside is the key risk. Unlike owning shares where you always have the stock's full value, a LEAPS call can lose value rapidly if the stock drops. And the LEAPS has a time decay component that shares don't have.

    PMCC vs Traditional Covered Call

    | Feature | PMCC | Traditional CC | Capital required$5,000-$8,000$15,000-$25,000 Return on capitalHigherLower Downside riskLEAPS can go to zeroStock always has some value DividendsNoneYes Max holding periodLEAPS expirationIndefinite ComplexityModerateSimple | Margin requirement | Defined risk | Shares as collateral |

    Managing the LEAPS

    Rolling the LEAPS: When your LEAPS has 3-6 months remaining, roll it to a new 12-18 month expiration. This costs money (you're paying for fresh time value) but keeps the strategy running.

    Time decay on LEAPS: Your LEAPS loses approximately $2-4 per month in time value. This is the "rent" you pay instead of the capital cost of owning shares. As long as your short call premiums exceed the LEAPS theta decay, you're net positive.

    When the PMCC Shines

  • You want covered call income but can't afford 100 shares of expensive stocks
  • You want to run covered calls on multiple positions with limited capital
  • You're trading in an IRA where you can't use margin for naked options

    • When to Use Traditional Instead

  • You want to hold the stock indefinitely (LEAPS expire)
  • You want dividends
  • The stock is cheap enough that 100 shares is affordable
  • You don't want to manage LEAPS rolling every 6-12 months

    • OptionsPilot tracks PMCC positions alongside traditional covered calls, calculating your net premium income after LEAPS theta decay so you can see the true yield on each position.