Building a Recession-Resistant Portfolio with Poor Man’s Covered Calls

“The goal is not to predict the future, but to prepare for it.”

Recessions don't have to be feared—they simply require a shift in mindset and smarter tools. For investors who prioritize capital efficiency, consistent income, and defined risk, the Poor Man’s Covered Call (PMCC) strategy can serve as a recession-proof foundation.

Unlike traditional covered calls, which require full stock ownership, the PMCC uses a deep-in-the-money, long-dated call option (LEAPS) to simulate long stock exposure. The capital saved is then put to work by selling short-term calls (30 to 60 days to expiration) against the newly purchased LEAPS to generate steady premium income.

In this article, I explore how to build a recession-resistant portfolio using PMCCs, backed by historical data from the last five U.S. recessions. We’ll highlight which stocks and ETFs have shown resilience, how to structure positions, and what outcomes investors should reasonably expect.

💡 Why the Poor Man’s Covered Call Works During Recessions

Recessions create a unique volatility-income window. Stock prices often stall or decline. Implied volatility tends to rise. Options premiums increase. And capital preservation becomes paramount.

The PMCC turns these challenges into opportunities:

• Capital Efficiency: Replace stock ownership with a LEAPS call (18+ months to expiration), typically costing 20–40% of the stock’s price.

• Income Generation: Sell short-term call options against your LEAPS to collect recurring premium. This steady flow of income can either be used as cash flow or reinvested to reduce the effective cost of the position over time.

• Risk Management: Your max loss is capped at the LEAPS cost (minus the total short-term call premium sold) , unlike full stock ownership.

During market downturns, when equity upside is limited and premiums are inflated, this strategy excels. You’re not betting on rallies—you’re monetizing volatility-driven markets.

🧱 Building Blocks of a Recession-Resistant PMCC Portfolio

When constructing a recession-resilient portfolio using Poor Man’s Covered Calls, the first step is choosing the right underlyings. Not every stock or ETF is up to the task.

To qualify, a candidate must exhibit:

• ✅ Strong historical performance in past downturns

• ✅ Low correlation to the broader market (SPY)

• ✅ High options liquidity—especially for long-dated LEAPS

• ✅ Stable revenue and earnings across economic cycles

In short, we’re looking for names that hold up under pressure and continue to offer premium-selling opportunities without extreme volatility.

🏆 The Recession-Resistant PMCC Candidates

Over the last five U.S. recessions—1990, 2001, 2008, 2020, and 2022—certain companies and ETFs have consistently stood out. They don’t just survive economic slowdowns; they often thrive in them. Together, they form a diversified, income-generating foundation for any PMCC portfolio.

Here’s a high-level breakdown:

Each ticker serves a different purpose within the strategy:

• WMT + DLTR: Anchor the portfolio with defensive consumer names.

• JNJ + MCD: Offer low volatility and reliable income generation.

• LMT + GLD: Provide diversification from equity markets and geopolitical tailwinds.

• XLU: Serves as the portfolio’s ballast—lower yielding, but highly dependable.

🔄 The Real Power Is in the Mix

What makes these names exceptional isn’t just their standalone strength—it’s how well they work together in a PMCC structure. With varying levels of beta, sector exposure, and volatility, they allow traders to rotate premium-selling opportunities depending on macro conditions.

➡️ When volatility spikes? Look to LMT, DLTR, or GLD for high-yield short calls.
➡️ When markets are choppy? JNJ and XLU hold their ground and still generate cash flow.
➡️ When the economy slows? Walmart and McDonald’s maintain demand and price stability.

This mix turns uncertainty into optionality.

Building a Diversified PMCC Portfolio

Creating a PMCC portfolio during a recession isn’t about swinging for the fences—it’s about allocating capital to sectors that complement one another while minimizing downside risk. By targeting defensive, income-producing names across consumer staples, healthcare, utilities, and precious metals, you create a framework for reliability.

Think of the portfolio as a quilt, where each piece provides coverage: consumer names like Walmart absorb spending shifts; healthcare firms like JNJ bring revenue consistency; gold (GLD) serves as a hedge; and utilities (XLU) provide low-beta ballast. This mix allows the short call premiums to work efficiently across different volatility regimes, keeping the overall portfolio resilient in most economic climates.

An example of a well-balanced recession portfolio using PMCCs might look like this:

Each sleeve contributes something different: defensive yield, low correlation, geopolitical upside, or inflation protection. Together, they offer balanced performance across most macro outcomes.

PMCC Execution: Best Practices

Managing a portfolio of Poor Man’s Covered Calls requires more than just strategy selection. Execution, monitoring, and adjustment are equally important. Start with deep ITM LEAPS—these replicate stock ownership with less capital. Go out 18 to 24 months and look for deltas above 0.75.

On the income side, sell calls 30 to 60 days out. If volatility is high, lean into slightly out-of-the-money strikes for better premiums. Monitor frequently and roll early when a short call nears the money or the underlying makes a sharp move. Risk control, not prediction, is where the PMCC strategy shines.

• Buy LEAPS 18-24 months out, ideally 60-70% ITM, delta > 0.75.

• Sell short calls 30-60 days out, at strikes where you’re comfortable with upside capping.

• Roll proactively to avoid assignment, especially in high-volatility markets.

• Rebalance every 8 to 12 months based on delta and theta decay.

You’re building income-producing, high-conviction positions with defined risk. It’s what smart options traders should be doing when the rest of the market is panicking.

Realistic Results: What PMCCs Deliver in Recession Environments

If the goal is steady income without large drawdowns, the PMCC structure delivers. In past recessions, portfolios constructed with names like GLD, LMT, and JNJ have shown resilience—not necessarily outperformance, but durability. The yield from short call selling provides consistent cash flow while the LEAPS structure caps risk.

For example, in 2008, a basket of Walmart, GLD, and XLU held up while the broader market fell 37%.

The real aim of a Poor Man’s Covered Call portfolio isn’t to hit home runs—it’s to generate steady, repeatable returns in markets that are flat, choppy, or even modestly declining.

When markets stall or drift lower, most strategies struggle. But PMCCs thrive by harvesting elevated options premium, turning fear and volatility into opportunity.

Target Outcome: A well-managed PMCC portfolio can reasonably aim for 10–20% annualized returns, with risk defined by your LEAPS cost and further cushioned by the premium collected along the way.

This is about smoothing equity curve volatility, not chasing headlines. You won’t beat the market in every bull run—but when others are scrambling, you’re cashing in on time decay and elevated IV.

It’s the disciplined, professional approach to generating income when others are just hoping for a bounce.

Here’s what this might look like in a few market environments:

• 2008 Bear Market: WMT and DLTR gained. GLD was flat to up. PMCCs on these names likely returned 10–15%, while the market lost 37%.

• 2020 Pandemic Crash: Initial drop was sharp, but WMT, GLD, MCD rebounded quickly. Premiums were elevated. Even holding through the panic produced low double-digit returns.

• 2022 Inflationary Drawdown: 60/40 portfolios got hit on both sides. PMCC portfolios held ground. LMT soared. XLU and GLD were flat. Income from short calls smoothed everything else.

Why This Matters Now

Investors don’t need to predict the next recession—they just need to be prepared for one. The combination of elevated interest rates, persistent inflation, and geopolitical uncertainty make the current environment a perfect testing ground for recession-resilient strategies.

PMCCs aren’t a magic bullet, but they offer an intelligent portfolio framework for capital efficiency, risk control, and income generation.

PMCC Recession-Resistant portfolio offers:

• Defined downside via LEAPS

• High IV setups during volatility spikes

• Monthly income from short calls

• Diversification and reduced correlation

This is a strategy for those who want to stay invested but stay smart about it.

Recessions reward preparedness—not prediction. With a curated list of PMCC-friendly stocks and ETFs, a disciplined execution plan, and a mindset focused on probability and protection, you can turn a downturn into an opportunity for steady income.

Check out our featured, free report on Poor Man’s Covered Calls. 

Probabilities over predictions,

Andy Crowder

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