A covered call is a great income strategy — if you can afford 100 shares. The poor man's version gets you most of the way there for a fraction of the cost.
The poor man's covered call (PMCC) is a capital-efficient twist on the covered call. Instead of owning 100 shares and selling calls against them, you own a deep-in-the-money long-dated call (a LEAPS) as your "stock" and sell short-term calls against that (covered calls, LEAPS).
How it's built
It's a diagonal spread: buy a LEAPS call deep in the money (high delta, so it moves almost like the stock), then sell a shorter-dated, higher-strike call against it to collect premium — repeating the short call as each expires (diagonal spreads). The long LEAPS is your stock substitute; the short calls generate the income.
The appeal and the catch
Appeal: the LEAPS costs far less than 100 shares, so you control similar exposure for a fraction of the capital — better return on capital if it works. Catch: your long call still decays (theta), you have an expiration to manage, and a sharp drop hurts the LEAPS' value; it's not a free lunch (theta decay). Managing the short strikes and rolls takes attention.
The PMCC swaps the big capital of 100 shares for the smaller cost — and the added complexity — of managing a long option with an expiration date.
When it fits
PMCC suits a neutral-to-mildly-bullish view on a name you can't (or don't want to) buy 100 shares of, if you're comfortable managing the diagonal (rolling options). Understand the greeks before running it (the greeks). Like any defined structure, know your max loss going in.
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NoVo is a software tool for market analysis, not financial advice. This article is general education, not investment advice. Options trading involves substantial risk of loss, up to and including your entire capital. NoVo makes no guarantee of profit, win rate, or performance, and past results do not predict future outcomes. You are responsible for your own broker account, configuration, and trading decisions.
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