You want covered call income, but the stock you like trades at $400 a share. To sell one covered call the normal way, you need 100 shares. That’s $40,000 tied up in a single position. For a busy business owner, that capital is better used elsewhere. There is a way to run a similar trade for a fraction of the cost.
What the Poor Man’s Covered Call actually is
The poor mans covered call (PMCC) is a capital efficient investing twist on the classic covered call. Instead of buying 100 shares, you buy one deep in-the-money LEAPS call. That long call acts as your “stock substitute.”
Then you sell a short-dated call against it, just like a normal covered call. You collect premium. You repeat. The goal is steady income while using far less capital.
Why this works for expensive stocks options
Expensive stocks are the whole point here. The more the share price, the more capital a real covered call demands. A LEAPS call lets you control the same 100 shares of exposure for much less money.
You are renting exposure instead of owning it outright. That frees up cash. For an owner with money flowing in and out of a business, that flexibility matters.
The two-leg structure, in plain English
There are only two parts to this options trading strategy. Keep them separate in your mind.
- The long leg: a deep in-the-money LEAPS call with a far-out expiry. This is your stock replacement.
- The short leg: a shorter-dated out-of-the-money call you sell for premium. This is your income engine.
The long leg moves up and down with the stock. The short leg pays you to wait. Together they mimic a covered call.
A worked example with real-feeling numbers
These are example numbers only. Use them to see the mechanics, not as a recommendation.
Say a stock trades at $400. A normal covered call needs 100 shares, so $40,000.
Instead, you buy one LEAPS call:
- Strike: $300 (deep in-the-money)
- Expiry: about 365 days out (DTE)
- Cost: $120 per share, so $12,000 for the contract
That $12,000 is roughly 70% less capital than the $40,000 for shares. You now control similar upside exposure for a much smaller outlay.
Next, you sell a short call against it:
- Strike: $430 (out-of-the-money)
- Expiry: about 30 days out (DTE)
- Premium collected: $6 per share, so $600
That $600 is income against your $12,000 position. If the stock stays below $430 at the short call’s expiry, that short call expires worthless. You keep the $600 and sell another call.
If the stock rises above $430, your short call gets assigned. But your long $300 LEAPS has gained value too. The spread between $300 and $430 is your defined profit zone. You give up gains above $430 in exchange for the premium you collected.
So your outcome falls into one of three buckets:
- Stock flat or down a little: short call expires, you keep premium, you repeat.
- Stock up modestly toward $430: you keep premium and your long leg gains too.
- Stock surges past $430: gains are capped, but the trade can still close positive.
How to choose your long leg
The long LEAPS call is the foundation. Pick it carefully, because a weak choice undermines the whole position.
- Go deep in-the-money. A high delta (think 0.80 or more) means the long call tracks the stock closely.
- Buy plenty of time. A long expiry slows time decay on your long leg.
- Mind the cost. The deeper in-the-money you go, the more you pay, but the less extrinsic value you carry.
The idea is to behave as much like stock as possible. The closer your long call mimics shares, the more this feels like a true covered call.
How to choose your short leg
The short call is where your income comes from. You sell it, collect premium, and manage it.
- Sell out-of-the-money, above the current price.
- Keep the expiry shorter than your long leg, so time decay works for you.
- Make sure the short strike is above your long strike. That protects your spread.
One rule you must respect: never let your short strike sit below your long strike. If it does, a sharp move can hurt you more than expected.
The risks you must respect
This is not a free lunch. The PMCC has real downsides you need to understand before you place a trade.
- Your long leg can lose value. If the stock drops hard, your LEAPS call falls too. The premium you collect softens this, but does not erase it.
- Time decay cuts both ways. Your long call also loses value over time. You need the short premium to offset some of that.
- Capped upside. A big rally gets capped by your short strike. You trade unlimited upside for steady income.
- Early assignment. A short call can be assigned before expiry, which forces you to manage the position.
Treat the position as one trade with two legs. Watch them together, not separately.
A simple checklist before you place the trade
- Pick a stock you understand and would happily hold exposure to.
- Choose a deep in-the-money LEAPS call with a long expiry and high delta.
- Sell a shorter-dated, out-of-the-money call above your long strike.
- Confirm the total capital used is far less than buying 100 shares.
- Know your three outcomes before you click buy.
The Takeaway
Start by paper-trading one PMCC on a stock you already follow, so you can watch both legs move before risking real money. Learn the mechanics first; the income comes once the structure feels natural.
Options selling carries real risk of loss, including the loss of your full position. This is education, not personalised advice. Trade only with capital you can afford to lose.
