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Covered call vs poor man's covered call: which one is for you?

A poor man's covered call swaps the 100 shares for a long-dated call option, so it needs far less cash. The trade-off is complexity: two options instead of one, a part that can lose value while the stock sits still, and an assignment that is harder to handle.

Options guide · 9-minute read · Updated 2026-10-27

The short answer

A regular Covered call means you own 100 shares and sell a call against them. A Poor man's covered call (PMCC) means you buy a long-dated call deep below the price, often a LEAPS call a year or more out, and sell short-dated calls against it.

The long call acts like the shares, for a fraction of the cash. But it is still an option. It can lose value with time and with falling Implied volatility. It pays no dividend. And if your short call is assigned, you don't have shares to hand over.

If you can afford 100 shares, the covered call is simpler. The PMCC is for someone who understands every moving part and accepts them.

How they compare

A worked example (an illustration, not a trade idea)

A made-up stock, XYZ, trades at $50.

Covered call: buy 100 shares for $5,000. Sell a 30-day $55 call for $1.00 ($100).

PMCC: buy a call with a $35 strike and about a year left, for $17.00 ($1,700). That's $15 of real value (the stock is $15 above the strike) plus about $2 of time value. Then sell the same 30-day $55 call for $1.00 ($100).

Results a month later, when the short call expires. The PMCC's long call value is a rough estimate. Its real price depends on time left and IV at that moment.

Look at the $40 row. Both lose about the same dollars. But the covered call lost $900 out of $5,000. The PMCC lost $900 out of $1,700, more than half of what you put in.

That's the real shape of a PMCC. Less cash at risk in total, but each dollar is more exposed. A fall that is a dent for the shareholder is a crater for the PMCC.

The extra risks of the cheaper version

1. The long call slowly melts. Time value on your long call drains every day. It's slow a year out, and faster as expiry nears. If the stock goes nowhere for months, the short calls you sell need to cover that drain.

2. A drop in IV hurts the long call. When the market calms down, all option prices fall. Your short call gets cheaper, which is fine. Your long call does too, which isn't.

3. Assignment is messy. If your short $55 call is assigned, you must deliver 100 shares you don't own. You end up short the shares. You then either buy them in the market or exercise your long call, which throws away its remaining time value. Talk to your broker about how they handle this before you open the trade.

4. The strike-width rule. The gap between the two strikes ($55 minus $35 = $20) should be more than what you paid for the position, net of the first short call ($17 − $1 = $16). If it's less, an assignment could lock in a loss even with the stock way up.

5. No dividend. Owning the call doesn't pay you the dividend. And a short call in the money just before an Ex-dividend date is more likely to be assigned early.

You can test your own numbers with the poor man's covered call calculator.

Why the wheel uses shares

The wheel strategy is built on owning the shares. You sell a put, get assigned 100 shares, then sell covered calls on them. A PMCC skips the put and the shares, so it's a different strategy with a different risk shape.

Some people run a "PMCC wheel" on purpose. It's an advanced version and not where we'd start. If 100 shares of a stock is more than your account can hold, a cheaper stock is usually the simpler fix.

Which one to choose

Choose the covered call when:

• You own, or can afford, 100 shares.
• You want dividends and simple assignment.
• You're new to selling options.

Consider a PMCC only when:

• You understand time value, IV and early assignment.
• You've done several covered calls first.
• You've worked out what happens if the stock falls 30% and the long call is your only asset.

In Canada, a PMCC needs permission to buy and sell options together, which some brokers don't allow in a TFSA or RRSP. Options permissions differ by broker, so check yours.

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