You see a stock you’d love to own. It trades at $300, $500, maybe $800 a share. To sell a normal covered call, you’d need 100 shares — that’s $30,000, $50,000, or more tied up in one position. As a busy business owner, that capital is doing other work. So you skip the trade and watch the covered call income go to someone else. There’s a way to earn similar income on those expensive stocks using far less cash.
The problem with traditional covered calls on expensive stocks
A covered call works like this. You own 100 shares. You sell a call option against them. You collect premium. That premium is your income.
The catch is the 100 shares. On a $400 stock, that’s $40,000 locked up before you earn a cent. For most people, that’s too much capital in one name.
The poor man’s covered call, in plain English
The poor man’s covered call (PMCC) swaps your 100 shares for one long call option. That long call acts as your “stock substitute.” It costs a fraction of the shares.
Then you sell a shorter-term call against it — just like a normal covered call. You collect premium. That’s your income engine.
So you have two legs:
- The long leg: a deep in-the-money call, far out in time. This replaces owning the shares.
- The short leg: a near-term out-of-the-money call you sell for income.
The goal is simple. Keep collecting premium from the short call while you hold the long call.
Why this uses up to 80% less capital
Buying a long call costs less than buying 100 shares. That’s the whole point. You control similar share exposure for a smaller outlay.
Here’s a rough feel. If 100 shares cost $40,000, a deep in-the-money long call might cost you around $8,000. That’s roughly 80% less capital for a comparable position.
Less capital per trade means you can spread your money. You’re not forced to bet everything on one expensive name.
How to choose your long leg
The long call is your foundation. You want it to behave like the stock. So you go deep in the money and far out in time.
- Deep in the money: a low strike, well below the current price. This makes the call move closely with the shares.
- Long expiration: far-dated, so time decay against you is slow.
The deeper and longer you go, the more it acts like real stock — but the more it costs. You’re balancing cost against how “stock-like” you want it.
How to choose your short leg
The short call is where your income comes from. You sell it above the current price, with a nearer expiration.
One rule matters most: the strike of your short call should be higher than the strike of your long call. This protects you if the stock jumps. You don’t want to sell a call below what your long leg cost you.
When the short call expires or you close it, you can sell another. You repeat this. Each cycle adds premium.
A worked example
Let’s use round, ticker-agnostic numbers. Treat these as an illustration, not a forecast.
Say a stock trades at $400. A traditional covered call needs $40,000 for 100 shares.
Instead, you build a PMCC:
- Long leg: you buy a call with a $300 strike, far-dated, for $11,000 ($110 per share × 100).
- Short leg: you sell a call with a $430 strike, about 30–45 days out, for $600 in premium.
Your capital outlay is roughly $11,000 instead of $40,000. The $600 you collected is your income for this cycle.
Now look at three outcomes at the short call’s expiration:
- Stock stays near $400: the $430 short call expires worthless. You keep the full $600. You can sell another call next cycle.
- Stock drifts to $420: still below $430, so the short call expires worthless. You keep the $600. Your long call has likely gained value too.
- Stock jumps to $450: your short call is in the money. You may owe on it, but your $300 long call has gained more than enough to cover that move, because $450 is well above your $300 strike.
In that last case, your profit is capped — the short call limits your upside above $430. That’s the trade-off for collecting income. You give up some upside to get paid now.
The risks you must respect
This is not free money. The biggest risk is the stock falling hard.
If the price drops well below your long call’s strike, your long call loses value. The premium you collected helps, but it won’t fully offset a large fall.
Keep these in mind:
- Your long call has an expiration. Time works against it, slowly. You’ll need to manage or roll it before it gets close.
- A sharp drop can hurt more than a single premium can cover.
- If the stock gaps far above your short strike, your gains are capped while the long leg still has to be managed.
Size each position so one bad trade can’t damage your account. Smaller capital per trade is an advantage here — use it.
A simple checklist before you place the trade
- Pick a stock you’d genuinely want exposure to.
- Buy a deep in-the-money, far-dated long call as your stock substitute.
- Sell a shorter-dated call above the current price for premium.
- Make sure the short strike sits above your long strike.
- Check the cost: are you saving real capital versus owning shares?
- Decide your plan for the short call before, not after, you sell it.
The Takeaway
Start with one expensive stock you respect, and build a single small PMCC to learn the mechanics by doing. Watch one full cycle of selling and managing the short call before you scale. The lesson lives in the repetition, not the first trade.
Options selling carries a real risk of loss, including losses larger than the premium you collect. This is education, not personalised advice. Trade only with capital you can afford to lose.
