How to Structure a Poor Man’s Covered Call for Beginners

A Practical, Capital-Efficient Alternative to the Classic Covered Call

If you’ve ever looked into covered calls but felt the capital requirement was too steep, you’re not alone. Buying 100 shares of a stock just to sell a call can tie up thousands of dollars — even before you’ve generated a dime in premium.

That’s where the Poor Man’s Covered Call (PMCC) comes in.

This options-based strategy gives traders the income potential of a traditional covered call — but at a fraction of the cost. For beginners and capital-conscious traders alike, it’s one of the smartest and most underutilized strategies out there.

In this guide, we’ll walk through how to structure a Poor Man’s Covered Call from scratch, why it works, how to avoid beginner mistakes, and how to manage the trade over time. You’ll also learn the logic behind the setup — not just the mechanics — so you can apply it with confidence.

🌱 What Is a Poor Man’s Covered Call?

A Poor Man’s Covered Call is a diagonal spread that mimics a traditional covered call — but instead of buying 100 shares of stock, you buy a deep-in-the-money LEAPS call option and sell a shorter-dated out-of-the-money call against it.

Here’s the basic structure:

• Buy 1 long-term call (LEAPS) — deep in the money, high delta (0.75+), ~12–24 months out

• Sell 1 short-term call — out-of-the-money (OTM), ~30–60 days to expiration

🔧 Step-by-Step: Structuring a PMCC the Right Way

Let’s break it down in a way that’s accessible and practical — with plenty of examples.

1. Choose a Stock or ETF

Start with highly-liquid, stable names you’d consider owning or trading:
Think: SPY, QQQ, AAPL, MSFT, JNJ, XLF — ideally with high open interest and tight bid-ask spreads.

Look for:

• A bullish-to-neutral outlook

• Decent implied volatility (IV) — but not too high

• Strong technical support for the underlying

2. Select the Long LEAPS Call (Synthetic Stock Position)

This is your alternative for owning the stock. Choose a LEAPS call:

• Expiration: ~12–24 months out (ideally 18–24)

• Strike: Deep ITM (at least 0.70–0.80 delta or 70 to 80 per contract)

📌 Example:
Let’s say AAPL is trading at $211.

Instead of buying 100 shares outright — which would cost you $21,100 — you purchase a June 2027 $165 call for approximately $69.75, or $6,975 per contract (equivalent to controlling 100 shares). That’s nearly 67% less capital required than buying the shares themselves.

👉 That kind of capital efficiency is one of the biggest advantages of the Poor Man’s Covered Call. It frees up capital — and with that flexibility, you now have the ability to diversify across a basket of stocks or ETFs, rather than tying up all your funds in a single name.

And diversification matters — especially in an options income portfolio. Here are the top three reasons why:

1. Reduced Single-Stock Risk: If one stock moves sharply against your position, it won’t sink your entire portfolio. Diversification limits drawdowns and keeps your capital working.

2. Steadier Income Stream: Spreading PMCCs across different sectors or tickers smooths out the timing of short-call expirations — allowing you to stagger income and avoid “all-or-nothing” paydays.

3. More Opportunities to Sell Premium: Each ticker has its own implied volatility cycle, so diversification means you’ll almost always have something primed for optimal premium selling.

This AAPL LEAPS has a delta of approximately 0.80, meaning for every $1 move in AAPL, your option gains about $0.80 — giving you strong directional exposure at a fraction of the cost.

3. Sell a Short-Term Call (Income Generator)

Now you sell a call 30–60 days out, OTM, with a delta between 0.20–0.30.
This premium helps lower your cost basis and generate repeatable income.

📌 Example:
Sell the June 2025 $220 call for ~$3.25 with a delta of 0.25

You now own:

• Long June 2027 $165 call - 762 days until expiration - delta of 0.80, or 80 per contract

• Short June 2025 $220 call - 35 days until expiration - delta of 0.25, or 25 per contract

⚖️ The Greeks and Delta Structure (Don’t Skip This Part)

• Your net delta will likely be around +0.50 to +0.60 at the start of the trade.

• This is a delta-positive, directional trade. You want the underlying to move higher, but not too fast.

• As your LEAPS appreciates, the delta will increase.

• If the short call goes deep ITM, your LEAPS will typically offset the loss — but it’s still important to manage proactively. Always.

🔄 How to Manage the Trade

✅ Rolling the Short Call

Every 30–60 days, you’ll roll the short call:

• If the stock goes up: Roll up and out.

• If the stock drops or goes nowhere: Roll out at the same strike or lower.

This is where the real “income” comes into play.

⚠️ Avoid These Common PMCC Mistakes

1. Not checking the extrinsic value gap

   • Your short call should always have more extrinsic value than your long call.

   • Rule of thumb: Long call < 10% extrinsic; short call = mostly extrinsic

2. Going ATM on the long call

   • Avoid the temptation to “go cheap.” You need a high-delta long call to replicate stock.

3. Letting short calls go deep ITM without managing

   • Be proactive. If the short call’s delta nears the LEAPS delta, you risk negating your edge.

🧠 Why PMCCs Are So Powerful for Beginners

• Capital-efficient: Use 65–85% less capital than traditional covered calls

• Defined risk: You know your max loss — the cost of the long LEAPS

• Income generation: Collect recurring premium by selling short calls

• Scalable: Works on high-priced stocks where shares are otherwise unaffordable

• Low maintenance: Trade it monthly or every 6–8 weeks

Who This Strategy Helps

PMCCs are gaining traction with:

• Retirees looking for income with limited capital

• Investors who want exposure to AAPL, SPY, MSFT or other high-priced stocks or ETFs without paying full price

• Global investors who face high transaction fees for full shares

• IRA traders seeking defined-risk strategies

📌 Final Thoughts

The Poor Man’s Covered Call is one of the most efficient ways to sell premium — especially for those with limited capital or smaller accounts. It offers stock-like exposure with far less downside, generates monthly income, and teaches beginners the critical skills of position sizing, delta management, and rolling.

It’s not without risks. But when structured correctly, managed consistently, and applied thoughtfully, it can form the foundation of a disciplined, income-focused options portfolio.

📬 If you enjoyed this breakdown, don’t miss next week’s Educational Corner in The Option Premium—your go-to source for clear, actionable options education.

Probabilities over predictions,

Andy Crowder

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