Poor Man's Covered Call (PMCC): Complete Guide with Example

The poor man's covered call is a diagonal debit spread that replaces 100 shares of stock with a single deep-in-the-money LEAPS call, then sells short-dated calls against it for income. You get covered-call-style cash flow while tying up a fraction of the capital — the reason it's a favorite of smaller accounts and return-on-capital-focused traders.

Capital efficientDiagonal spreadLevel 3 options

What is a poor man's covered call?

A poor man's covered call (PMCC) is a diagonal debit spread that behaves like a covered call without the cost of owning 100 shares. It has two legs:

  1. Buy a deep-in-the-money, long-dated LEAPS call (6–12+ months out, ~0.80+ delta) to act as your stock substitute.
  2. Sell a shorter-dated out-of-the-money call (30–45 DTE) against it to collect premium — exactly like the short call in a real covered call.

Because the LEAPS is deep in the money, it moves almost dollar-for-dollar with the stock, so selling calls against it produces the same income profile as a covered call. If you already know the standard version, our covered call calculator is a good place to compare the two side by side.

How it works — and why it costs so much less

In a traditional covered call you own 100 shares and sell a call against them. Owning those shares is the expensive part. The PMCC swaps the shares for a high-delta LEAPS call that captures nearly the same upside for a fraction of the outlay.

  • The LEAPS' high delta (~0.80) means it gains roughly $0.80 for every $1 the stock rises — close to stock-like exposure.
  • Every cycle you sell an OTM call and pocket the premium; as it decays, your net cost in the LEAPS drops.
  • Your capital at risk is only the net debit paid, not the full price of 100 shares.

The catch is that the LEAPS carries some extrinsic time value that decays over its life, and it eventually expires — unlike shares, which you can hold forever and which pay dividends.

Poor man's covered call example

Suppose a stock is trading at $100 and you're moderately bullish over the next year.

  • Buy the LEAPS: a 1-year $80 call (~0.80 delta) for about $18 ($1,800) instead of $10,000 of stock.
  • Sell the short call: a 30-day $105 call for about $2 ($200 collected).
  • Capital committed: ~$1,800 vs $10,000 for shares — roughly 82% less.
  • Income: the $200 premium is ~11% of your $1,800 cost basis in a single cycle.
  • Max loss: the net debit paid ($1,800 − premiums collected) if the stock collapses.
  • Upside cap: gains above the $105 short strike are given up for that cycle.

Sell a fresh call each month and the collected premium steadily reduces your LEAPS cost basis — the engine that drives the strategy's return on capital.

Choosing the LEAPS (the long leg)

The long call is your stock substitute, so you want it to behave as much like stock as possible:

  • Delta ~0.80 or higher: deep in the money so it tracks the stock closely and holds mostly intrinsic value.
  • 6–12+ months to expiration: long-dated so daily time decay on the long leg stays slow.
  • Liquid strikes: tight bid/ask so you aren't bled on entry and exit.
  • Enough width above the strike: the strike should sit well below the price so the call keeps its high delta.

Choosing the short call (the income leg)

The short call is what generates your recurring income — pick it the way you would for any covered call:

  • Out of the money: a strike above the current price so you keep some upside room.
  • ~0.30 delta: a common balance of premium collected against the odds of being challenged.
  • 30–45 DTE: the sweet spot for theta decay before gamma risk accelerates.
  • Above your LEAPS strike: so the diagonal keeps a positive width and you don't cap your own long leg.

PMCC vs a traditional covered call

Where the PMCC wins:

  • 70–90% less capital tied up, so return on capital is much higher
  • Smaller accounts can run a covered-call-style position on expensive stocks
  • Defined max loss equal to the net debit

Where the covered call wins:

  • You receive dividends; the PMCC does not
  • Shares never expire and carry no extrinsic time decay
  • Simpler to manage, with no long-leg roll or expiration to plan around
  • Less exposed to a sharp drop, since the LEAPS can lose value faster in percentage terms

Risks and management

  • Downside on the LEAPS: if the stock falls, the long call loses value — your max loss is the net debit paid.
  • Time decay on the long leg: the LEAPS' extrinsic value erodes even if the stock is flat, so roll before it gets short-dated.
  • Early assignment: the short call can be assigned, especially before an ex-dividend date — roll it up and out before it goes deep in the money.
  • Capped upside: a fast rally above the short strike limits that cycle's gains; roll the short call up to recapture room.
  • Manage the short leg actively: close or roll at ~50% of max profit, just as you would a standalone covered call.

Want to pressure-test the strategy before committing capital? Model a PMCC-style diagonal across decades of real market data with the options backtester and see how it holds up in trending versus choppy regimes.

Related strategies & tools

Covered Call Calculator

Calculate →

Iron Condor Strategy

Guide →

Collar Strategy

Guide →

Per-Ticker Guides

860+ stocks →

Poor Man's Covered Call FAQ

What is a poor man's covered call?

A poor man's covered call (PMCC) is a diagonal debit spread that mimics a traditional covered call with far less capital. Instead of buying 100 shares, you buy one deep-in-the-money, long-dated LEAPS call to act as a stock substitute, then sell a shorter-dated out-of-the-money call against it. You collect premium from the short call just like a covered call, but you tie up a fraction of the cash.

How does a PMCC work?

The long LEAPS call moves nearly point-for-point with the stock because it is deep in the money (high delta), so it behaves like owning shares. Each cycle you sell a 30–45 DTE out-of-the-money call and keep the premium as the short call decays. If the short call is challenged you roll it out and up; if it expires worthless you sell another. Your net cost basis in the LEAPS falls with every premium you collect.

PMCC vs covered call — which is better?

A PMCC uses roughly 70–90% less capital than a real covered call, so it has a higher return on capital. The trade-offs: you don't receive dividends, the LEAPS loses time value (theta) and can lose money if the stock falls, and there's no permanent share ownership. A traditional covered call is simpler, collects dividends, and never expires. Choose the PMCC for capital efficiency and the covered call for durability and income on shares you want to hold.

What delta LEAPS should I use for a PMCC?

Aim for a deep-in-the-money LEAPS with a delta around 0.80 or higher and 6–12+ months until expiration. A higher delta means the long call tracks the stock more closely (more stock-like) and carries less extrinsic time value to decay. Going too far out of the money makes the position behave less like stock and adds more theta risk to the long leg.

How much capital does a PMCC save?

A lot. Buying 100 shares of a $100 stock costs $10,000. A one-year 0.80-delta LEAPS on the same stock might cost around $1,800 — roughly 82% less capital for similar directional exposure. That capital efficiency is the entire appeal of the strategy, though it comes with expiration and time-decay risk that owning shares does not have.

What are the risks of a PMCC?

The main risks are: (1) the stock drops and your LEAPS loses value — your max loss is the net debit paid; (2) the LEAPS bleeds extrinsic time value even if the stock is flat; (3) a sharp rally above your short strike caps your upside; and (4) early assignment on the short call, especially around ex-dividend dates. Managing the short strike and choosing a high-delta LEAPS reduce these risks but never eliminate them.

Can you get assigned on a PMCC?

Yes. The short call you sell can be assigned early, most commonly the day before an ex-dividend date if it is in the money. If assigned, you'd be short 100 shares, which you can cover by exercising your LEAPS or by buying shares. To avoid it, roll the short call up and out before it goes deep in the money, and watch ex-dividend dates closely.

Can you run a PMCC in an IRA?

Often yes, but it depends on the broker. A PMCC is a defined-risk diagonal spread, so it usually requires spread-level (Level 3) options approval, which many IRA custodians allow. Some brokers restrict long-dated spreads or naked-looking legs in retirement accounts, so confirm your approval level and margin rules before placing the trade.

Backtest a poor man's covered call before you trade it

Simulate capital-efficient income strategies on 30+ years of real market data — free.

Launch the Backtester →