COST Poor Man's Covered Call: Strike Selection, Premium & Risk
How to sell poor man's covered calls on Costco Wholesale — optimal strikes, expected premium, and the risks that actually matter for a large-cap consumer staples name.
Is COST a good poor man's covered call candidate?
COST (Costco Wholesale) is a large-cap consumer staples name with an elevated share price and excellent options liquidity. Implied volatility is low, so premiums are modest. Traders use this name when they want stability and a low probability of assignment rather than maximum yield. It also pays a dividend, which adds a second income stream on top of the premium you collect.
Strike selection for a COST poor man's covered call
For a COST PMCC, buy a long-dated call with 0.80+ delta (typically 12-18 months out) as your synthetic long, then sell short-dated calls 3-5% above the stock price at 0.25-0.35 delta. The LEAPS tie up roughly 30-50% of the capital of buying 100 shares, which is especially valuable on an elevated share price ticker like COST.
Expected premium and income on COST
Typical monthly premium collected on COST runs around 0.5-1.0% of capital, which annualizes to roughly 6-12% if you sell new contracts every cycle. Capital required to run a single contract wheel on COST is $20,000+ — the share price and the 100-share lot size set the minimum, not the strategy.
Reference Trade
Example Covered Call on COST
- Strike: $960 (4% OTM)
- Expiration: 30 days
- Premium: $10.00 per share
- Return if flat: 1.1% ($1,000)
- Return if called: 5.0% ($4,600)
- Probability keep shares: 75% keep shares
Risk management for COST poor man's covered call trades
PMCC risk is concentrated at the LEAPS expiration: if the stock collapses, the long-dated call can lose significant value quickly. You also have to manage the short call not going deep in the money against you before your LEAPS appreciates equivalently. COST is a low-volatility name — the main risk is not sudden moves but slow grinds against you, which hurt covered-call writers who picked strikes too close to the money. Consumer staples are traditionally low-beta but are not immune to commodity cost shocks and currency swings for multinationals.
COST Poor Man's Covered Call FAQ
Can you run a poor man's covered call on COST?
Yes. Buy a 0.80+ delta LEAPS on COST dated 12-18 months out as your synthetic long, then sell short-dated calls 3-5% above the stock at 0.25-0.35 delta. Capital tied up drops from $20,000+ to roughly 30-50% of that — a meaningful improvement when the share price is an elevated share price.
What expiration should I use for COST poor man's covered call trades?
Use 30-45 DTE as a default for COST. This is the classic theta sweet spot and works well on a stable ticker like this.
Is COST suitable for beginners selling options?
Yes — it's a well-known, liquid name with established options markets, which is what beginners need.
Related COST strategies
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