Laddering Monthly Income with Poor Man’s Covered Calls

For traders searching for a smarter way to earn steady income without tying up $10,000, $25,000, or $50,000 in capital per position, the traditional covered call can feel like a relic. It’s effective, yes—but not exactly efficient.

That’s where the Poor Man’s Covered Call (PMCC) steps in. It’s lean. It’s flexible. And when used the right way, it can deliver a reliable stream of income without sacrificing diversification or opportunity cost.

In this article, I’ll walk you through the same laddered PMCC approach I use inside my Wealth Without Shares portfolios. We’ll cover why it works, how we build it, and the risks you need to manage—because options are tools, not toys. We trade with a focus on edge, probability, and capital preservation first.

What Is a Poor Man’s Covered Call?

A PMCC replicates the payoff profile of a traditional covered call, but instead of tying up capital in 100 shares of stock, you buy a long-dated, deep-in-the-money call (LEAPS) and sell short-term calls against it.

You’re creating synthetic stock exposure with a fraction of the cost.

Example:

• Long Call: SPY Jan 15, 2027 510 call (LEAPS, delta ~0.80, 606 DTE)

• Short Call: SPY June 20, 2025 615 call, (delta ~0.22, 32 DTE)

Cost of 100 shares: $594.85 × 100 = $59,485

Cost of January 15, 2027 510 call (LEAPS): $129.70 per LEAPS contract (equivalent to 100 shares of stock) = $12,970

Savings: $46,515, or 78.2%

This structure allows you to:

• Reduce capital outlay by 65–85%

• Maintain defined directional exposure

• Sell premium consistently for monthly income

Don’t be confused, PMCCs are a strategy designed not for maximizing leverage—but for building consistent returns with precision and control.

Why Capital Efficiency Matters More Than Ever

Let’s be honest: the modern options trader needs flexibility. With inflation, market volatility, and tighter retail margins, locking up large capital chunks in a single position is increasingly inefficient.

Capital-efficient strategies like the PMCC allow traders to:

• Stay diversified (multiple positions instead of one)

• Keep cash available for adjustments or new setups

• Build consistent income without maxing out margin

Capital is your most precious resource. Efficient use of it is the difference between trading with leverage and trading with purpose.

The PMCC Ladder: Our 5-Portfolio Framework

To create a smooth income stream, we structure our PMCC portfolios based on five distinct, strategy-driven themes within our Wealth Without Shares service. Each one is designed to align with a specific risk profile, market behavior, and income objective:

1. All-Weather PMCCs
   This is our diversified core. It’s built to handle a range of market conditions using sector ETFs and low-beta names. The goal is stability, not outperformance—steady premium income regardless of the macro regime.

2. Buffett PMCCs
   Modeled after Warren Buffett’s value-driven investing philosophy, this portfolio focuses on high-quality businesses with durable moats, strong cash flows, and consistent performance. These are ideal candidates for long-dated LEAPS and conservative short calls.

3. Small Dogs PMCCs
   A twist on the classic Dogs of the Dow. This portfolio focuses on high-yielding Dow components or overlooked blue chips with solid fundamentals and compressed valuations. Think of this as a value-income hybrid with minimal frills.

4. Momentum PMCCs
   This is our tactical sleeve. It rotates into names with strong relative strength, favorable trends, and premium-rich volatility profiles. We look for bullish continuation patterns and manage exits closely.

5. Growth PMCCs
   Focused on companies with long-term earnings potential, innovation, and high reinvestment rates. These names carry more volatility, but we position size accordingly. Think of this as the forward-looking, capital appreciation sleeve.

Each portfolio holds 3–5 carefully selected trades, laddered by expiration and aligned with market conditions. This diversified structure keeps income flowing weekly, spreads risk intelligently, and offers multiple sources of premium generation.

Deep Dive: SPY PMCC Ladder in Action

To see this approach in practice, here’s a multi-tiered example using SPY. Many also use SPX as a replacement to SPY.

• Long Call: 3 contracts of SPY Jan 15, 2027 510 call (LEAPS, delta ~0.80, 606 DTE) for $12,970 or $38,910 for three contracts

• Short Call: 

• 1 contract June 20, 2025 615 call, (delta ~0.22, 32 DTE) for $2.84 or $284 per contract

• 1 contract June 27, 2025 620 call, (delta ~0.18, 39 DTE) for $2.38 or $238 per contract

• 1 contract July 18, 2025 625 call, (delta ~0.21, 60 DTE) for $3.52 or $352

Total Premium: 3 contracts - $874

This structure gives us:

• Exposure to market movement (delta positive positions)

• Staggered income (monthly, bi-monthly)

• The ability to roll selectively based on market behavior

Each leg acts like its own mini-trade while all being anchored to one long core position. Think of it like a bond ladder—only you’re collecting option premium instead of interest.

Strategic Benefits of the Ladder

• Consistent Income: Monthly premium from rolling calls

• Reduced Volatility: Only one leg is exposed to short-term market risk at a time

• Active Management, Light Lifting: Adjusting one short call per week is far less intense than managing five separate trades

• Scalable: As your account grows, you simply add more layers or widen your ladders

This isn’t about complexity. It’s about control.

How We Manage the PMCC Like a Pro

At The Option Premium, we follow structured rules:

• Delta targets: Long LEAPS at 0.75–0.85, short calls at 0.20–0.35

• Roll windows: In most cases roll at 50% to 75% profit —whichever comes first

• IV Rank filters: Only initiate new trades when IV Rank > 35 to ensure rich premium

• Assignment avoidance: Short calls are OTM and actively managed—assignment risk is minimal

We also track correlation and volatility clusters. For example, running XLE and SPY PMCCs together? Acceptable. But XLF and JPM together? Too much overlap. These nuances matter.

Risks and How We Mitigate Them

Options trading always carries risk—but the PMCC ladder mitigates many of the most common issues:

• Short Call Breaches: If a short call goes ITM, we roll up or out. The LEAPS gives us coverage.

• IV Crush: We sell premium, so falling IV benefits us on the short side. Our long call is deep ITM, so its vega is lower.

• Market Crashes: Because PMCCs cost less than traditional stock, we can hedge (e.g., using SPY protective puts) without draining capital.

Final Thoughts

This strategy is not flashy. It won’t double your account in a month. But that’s the point.

The goal isn’t to impress. It’s to progress. To create consistency. To stop thinking about what the market will do and start focusing on what you will do when it moves.

With PMCC ladders, you’re not betting. You’re building.

FAQs

Q: Can I use PMCCs in an IRA?
A: Yes, most brokers allow LEAPS and covered call equivalents within an IRA. However, you’ll want to double-check whether your broker supports long-dated options and if there are any account restrictions on spreads or assignment risk.

Q: What’s the minimum account size to get started?
A: Around $2,000 to $3,000 is the minimum per PMCC position. To comfortably build a full five-position ladder, $10,000–$15,000 gives you enough room to diversify, scale, and manage trades with flexibility. This depends on the underlying price of the assets in the portfolio. High priced stocks = high priced LEAPS.

Q: What if the stock moves too fast?
A: This is where the ladder shines. You can manage individual short calls without disturbing the entire structure. If one leg gets breached, you can roll that strike independently while letting the others ride. You're never all-in on a single expiration or outcome.

Q: What happens if volatility collapses?
A: As premium sellers, we benefit from falling volatility on our short calls. The LEAPS may lose some theoretical value due to lower vega, but since we’re deep ITM, most of our value is intrinsic. This setup is more resilient to vol crush than most think.

Q: Can PMCCs be adjusted like a traditional covered call?
A: Absolutely. You can roll up, down, or out in time. The key difference is that your long call anchor acts like synthetic stock, so you don’t deal with assignment risk the same way. Adjustments should still follow rules around delta, duration, and premium received.
A: Laddering allows you to roll one leg while keeping others intact. Adjustments are targeted—not reactive.

Probabilities over predictions,

Andy Crowder

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