The wheel vs the PMCC wheel: less capital, more ways to lose
The wheel owns 100 shares and sells calls on them. The PMCC wheel owns a long-dated call instead of shares and sells calls on that. It needs a fraction of the cash, and it can lose most of that fraction.
The short answer
The wheel strategy is sell a put, get shares, sell calls on the shares, repeat. The base of the trade is 100 real shares.
The PMCC, or Poor man's covered call, swaps the shares for a deep in-the-money, long-dated call, a LEAPS contract. You sell short calls against that long call. Some people run it as a loop and call it the PMCC wheel.
The PMCC costs a fraction of the cash. In return, the long call can lose most of its value in a drop that would only dent the shares, it melts a little every day, it pays no dividends, and it cannot be "assigned" into like a put can. Less capital, more ways to lose.
Side by side
| The wheel | The PMCC wheel | |
|---|---|---|
| The base position | 100 shares | One deep in-the-money LEAPS call |
| Cash needed | The full share price × 100 | The LEAPS price × 100, often 20–40% of that |
| How you get in | Sell a put, maybe get assigned | Buy the LEAPS outright |
| Dividends | Yes, if the stock pays | No |
| Daily time decay on the base | None | Yes, the LEAPS loses value every day |
| If the stock drops 20% | Shares drop 20% | LEAPS can drop 50% or more |
| If the stock goes to zero | Lose the shares' value | Lose the whole LEAPS |
| If the short call is assigned | Your shares are sold | You have no shares; the broker may exercise your LEAPS or you go short stock |
| Fits | People who want to own the stock | People short on cash who accept a leveraged loss |
A worked example (an illustration, not a trade idea)
XYZ trades at $50.
- Wheel: you own 100 shares, $5,000. You sell a 30-day $55 call for $1.00, collecting $100.
- PMCC: you buy a one-year $35 call for $17.00 ($15 intrinsic value, $2 time value), $1,700. You sell the same 30-day $55 call for $1.00, collecting $100.
Three months later, after the bad news, XYZ is at $40. The short calls expired. Rough LEAPS values are shown.
| XYZ after 3 months | Wheel (100 shares) | PMCC (the $35 LEAPS) |
|---|---|---|
| $60 | Called away at $55: +$500 + $100 = +$600 | LEAPS worth about $26: +$900, but you owe $500 on the short call: +$400 + $100 = +$500 |
| $50 | Flat on shares: +$100 | LEAPS worth about $16.50 (time melted): −$50 + $100 = +$50 |
| $40 | Shares −$1,000, premium +$100: −$900, which is 18% of the $5,000 | LEAPS worth about $6.50: −$1,050 + $100 = −$950, which is 56% of the $1,700 |
| $35 | Shares −$1,500 + $100: −$1,400 (28%) | LEAPS worth about $2: −$1,500 + $100 = −$1,400 (82%) |
The dollar losses look similar. The percentages do not. The share owner at $40 is down 18% and holding a stock that still exists. The LEAPS owner is down 56% of their money and holding a contract that is still melting and has months to go.
Now extend it. At $40, the wheel owner sells another call, maybe a $45 for $0.60, and keeps going. The PMCC owner's $35 call is barely in the money. Any short call that brings in real premium now sits near or below the LEAPS strike, which caps the recovery. The lower rungs of the loop are gone.
The honest frame: the PMCC does not reduce the stock's risk. It concentrates it. You put in a third of the money, and the same move takes three times the share of it.
Why the "wheel" part breaks on the PMCC
The wheel's first step is a Cash-secured put. If you are assigned, you get shares at the strike, and the loop continues. That step needs the cash for 100 shares. If you had that cash, you would not need a PMCC.
So the PMCC wheel usually skips the put and just buys the LEAPS. That is not a wheel. It is a diagonal spread with a long holding period. Fine as a trade, but the "get paid to wait for the shares" part is missing.
And if the short call goes deep in the money and is assigned, you do not own shares to deliver. Brokers handle this differently: some exercise your LEAPS to cover, some leave you short 100 shares overnight. Ask yours before it happens.
Where the PMCC does fit
- A stock you want exposure to, with a share price too high for 100 shares.
- A trader who understands they are long a decaying option, not stock.
- Sized so that losing the whole LEAPS is a loss you can take. See the covered call guide for the share version it is copying.
Which one fits you?
- Can afford 100 shares and want to own them: the wheel.
- Cannot afford 100 shares: a smaller stock on the wheel, or a PMCC sized to lose it all. Not a PMCC sized like shares.
- Want dividends, or want to hold through a long drop: shares. A LEAPS cannot wait forever; it expires.
Questions
What is the PMCC wheel?
A poor man's covered call run as a loop: buy a deep in-the-money long-dated call instead of 100 shares, sell short calls against it, and repeat. It skips the cash-secured put step because there is no cash for shares.
Is a PMCC less risky than the wheel because it costs less?
No. It puts less cash at risk, but a drop in the stock takes a much bigger share of that cash, and the long call can go to zero. In percent terms it is riskier.
What happens if my short call is assigned in a PMCC?
You owe 100 shares you do not own. Depending on the broker, your long call is exercised to deliver them, or you are left short 100 shares. Either way, call your broker before expiry if the short call is in the money.
Does the LEAPS lose value if the stock stays flat?
Yes. Its time value melts a little every day. On a one-year deep in-the-money call that is slow, but over a year it is the whole time value you paid.
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