Eight Practical Ways to Hedge Your Poor Man’s Covered Calls

Lately, I’ve been receiving more and more emails from readers asking the same question: “How do I defend my PMCC positions when the market turns against me?” It’s a fair concern. Even with a high-probability strategy like the Poor Man’s Covered Call, traders need to be ready for inevitable drawdowns because inherently, the strategy is long deltas (bullish leaning).

PMCCs have been working beautifully since we introduced our positions back on May 1st. Across nine positions, we’ve generated over $7,000 per contract, with an average return of 24.8% per position, while the comparable underlying stocks were only up 8.2% over the same period. That’s the power of capital efficiency, PMCCs don’t just mimic covered calls, they magnify their advantages.

But leverage cuts both ways. When markets pull back, PMCCs need defending. And the good news is, the best hedges are often the simplest, cheap, teachable, repeatable tactics that give you protection without eating away at your edge. Below, I’ll walk through eight of the most practical ways to hedge your PMCCs. And I plan to dig deeper on each way to defend a poor man covered call over the next few weeks.

1. Position Sizing: Your First Hedge

Position-sizing is the first hedge happens before you even place a trade. Most traders over-leverage, assuming their position will always cooperate. In PMCCs, that’s a recipe for trouble. By sizing modestly, allocating just a fraction of your capital, you protect yourself from catastrophic losses. The smaller the trade, the less emotional capital you burn when markets move against you. Think of it as hedging with discipline.

2. Hold Cash as a Hedge

Cash is underrated. Traders hate the idea of “sitting out,” but cash is often the cheapest and most flexible hedge. It gives you breathing room when volatility spikes and allows you to redeploy capital into better setups. For PMCC traders, having cash on the sidelines means you aren’t forced into panic rolls or costly hedges when markets turn ugly.

3. Buy a Protective Put (The Collar Approach)

The most straightforward hedge: buy a cheap out-of-the-money put. It’s like insurance on your LEAPS. You won’t need it often, but when markets fall hard, that put absorbs the hit. Yes, you’re sacrificing some premium, but it transforms undefined downside into defined risk, a tradeoff professionals are always willing to make when probabilities shift.

4. Roll Your Short Call Strategically

Rolling isn’t just an income tactic, it’s a hedge. If the stock drops, rolling your short call down (and sometimes out in time) can help recoup losses by collecting additional premium. If the stock rallies too far, rolling up caps the risk of assignment while protecting your LEAPS leg. Rolling well is less about squeezing pennies and more about using flexibility as a hedge.

5. Balance Portfolio Delta

Think of delta as your steering wheel. A PMCC portfolio that’s too net long is vulnerable when markets turn. By calculating your aggregate delta, you can add offsetting short-delta trades, like index puts or bear call spreads, to bring balance. This is one of the cleanest, most mathematical ways to hedge: it aligns risk directly with probabilities.

6. Add Index Hedges (SPY, QQQ, IWM)

Hedging every position individually can be expensive and messy. Sometimes it’s far more efficient to buy a hedge on the broader market. A put spread on SPY or QQQ covers systemic risk without interfering with your core PMCC setups. When the entire market pulls back, index hedges often provide more bang for the buck than single-stock hedges.

7. Hedge with Correlated Pairs

If your PMCC is on an individual stock, you don’t always have to hedge the same name. Often, a correlated ETF provides cheaper and more liquid protection. For example, if you’re running a PMCC on Apple, hedging with QQQ puts may be more efficient. The correlation does the heavy lifting, while you enjoy better pricing and tighter spreads.

8. Use Bear Call Spreads in Overbought Markets

Finally, when conditions look frothy, one of the best hedges is a simple bear call spread above resistance. Defined risk, low capital outlay, and it offsets losses if the stock or market pulls back. Think of it as getting paid while waiting for gravity to do its work. Bear call spreads are particularly effective when volatility is elevated, as you can sell rich premium while keeping defined risk.

Before You Place Your Next PMCC

Hedging your PMCCs isn’t about eliminating risk, it’s about making sure risk never overwhelms your portfolio. Whether you’re using protective puts, rolling calls, index hedges, or just the discipline of position sizing, the goal is the same: keep yourself in the game long enough for probabilities and time decay to work in your favor.

Remember, professional options traders don’t hedge to avoid losing money. They hedge to avoid losing control.

Probabilities over predictions,

Andy Crowder

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