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What is a poor man's covered call (PMCC)?

In one line: A poor man's covered call (PMCC) is buying a deep-in-the-money long-dated call (a LEAPS) in place of 100 shares and selling shorter-dated calls against it, which lowers the cost of entry but adds risks a true covered call doesn't have.

Trading glossary · Updated 2026-10-26

How it works

A Covered call needs 100 shares. A poor man's covered call replaces them with a deep-in-the-money LEAPS call, often a year or more out, with a high Delta so it moves almost like stock. Then you sell a shorter-dated call against it, the same way you would against shares.

The appeal is the price tag. A $50 stock costs $5,000 for 100 shares. A deep LEAPS call might cost $2,300. The short calls collect premium either way.

What you give up:

• The floor. Shares can fall to zero in theory, but they stay worth something. A LEAPS below its strike goes to zero at expiry.
• Time value. The LEAPS has time value that melts. Shares don't.
• Dividends. None.
• Clean assignment. If the short call is assigned, you must deliver shares you don't own. Your broker may exercise the LEAPS for you, burning its remaining time value.

The wheel strategy proper runs on shares. The PMCC is a cousin, and the losing example below is why it's a cousin, not a twin.

An example (hypothetical)

An illustration, not a trade idea, and this one goes wrong. Made-up stock XYZ trades at $50. You buy a 14-month $30 call for $23.00 ($2,300). You sell a 30-day $55 call for $0.80 ($80).

Month one: XYZ drifts to $48. The short call expires. You keep $80. The LEAPS is worth about $20.60. Fine so far.

Then XYZ falls to $38 over two months on weak results. You keep selling calls, but strikes near your cost now pay almost nothing.

Three months in, the short calls have brought in $140. The LEAPS has lost $1,300. A shareholder at $50 would be down $1,200 and still own 100 shares with no clock running. You're down $1,160 and your long call is losing time value every day. If XYZ sits at $38 until expiry, the LEAPS ends worth about $800: a −$1,500 loss on the long call. At $20 a call, the short calls left can't come close to covering it.

Why it matters for sellers

The PMCC isn't a cheaper covered call. It's a different trade with a smaller entry and a worse bottom. Three things to decide before using one:

1. The LEAPS strike. Deeper in the money means more like stock, less time value, and a higher cost. Shallower is cheaper and more likely to end up worthless.
2. The short strike versus your cost. Selling a call below the LEAPS strike plus what you paid locks in a loss if assigned.
3. What assignment does. Ask your broker, before the first trade, what happens if the short call is exercised while you hold the LEAPS.

If any of those three is unclear, the plain covered call is the trade to learn first.

Questions