PMCC Position Sizing: How Much Capital to Allocate Per Trade

The poor man's covered call is one of the most capital-efficient income strategies available to retail traders. But that efficiency creates a trap. Because the entry cost is relatively low compared to a traditional covered call, many traders open too many positions, allocate too much to a single trade, or fail to account for the true risk they're carrying.

Position sizing isn't the exciting part of trading. Nobody posts their allocation spreadsheet on social media. But after 23+ years of selling premium, I can tell you with certainty: the traders who survive and compound are the ones who get this part right. Strategy selection gets the attention. Position sizing determines the outcome.

Why PMCCs Require a Different Sizing Approach

A traditional covered call requires you to own 100 shares outright. If you're running a covered call on a $200 stock, that's $20,000 in capital for a single position. The math is straightforward and the position size is self-limiting.

A PMCC replaces that stock ownership with a deep in-the-money LEAPS call, typically costing $3,000 to $7,000 depending on the underlying. That lower entry point is the strategy's biggest advantage and its biggest sizing risk.

Here's why: with $50,000 in capital, you can only run two or three traditional covered calls. But you could open eight to twelve PMCCs. The temptation to fill every available dollar with a new position is real. And it's exactly how traders turn a conservative income strategy into a concentrated, overleveraged portfolio.

The Core Sizing Rule: Risk Per Position

The foundation of PMCC position sizing is knowing your maximum risk on each trade and keeping it within a defined percentage of your total account.

Your maximum risk on a PMCC is the debit paid for the LEAPS minus any premium collected from the short call. If you buy a LEAPS call for $5,000 and immediately sell a short-term call for $400, your net risk is $4,600. That's your worst-case scenario if the stock drops to zero and both options expire worthless.

The rule I follow: no single PMCC position should represent more than 5-10% of your total account value at risk.

For a $50,000 account, that means each PMCC should carry no more than $2,500 to $5,000 in maximum risk. For a $100,000 account, the ceiling is $5,000 to $10,000 per position.

This isn't arbitrary. It's math. If you limit each position to 5% of your account, you need 20 consecutive maximum losses to blow up. At 10%, you need 10. Given that PMCCs have multiple management tools available, the probability of a total loss on any single position is low. But position sizing is about surviving the improbable, not just profiting from the probable.

How Many Positions Can You Run?

Once you know your per-position risk limit, the number of positions follows naturally.

For a $50,000 account at 5% risk per position ($2,500 max risk each), you're looking at four to six PMCC positions depending on the underlying. For a $100,000 account, six to ten positions is a reasonable range.

But there's a critical layer most traders miss: sector and correlation risk. Running six PMCCs sounds diversified until you realize four of them are in mega-cap tech. When the Nasdaq sells off 8% in a week, those four positions move together and your "diversified" portfolio takes a concentrated hit.

I aim for no more than two PMCC positions in any single sector. If I'm running a PMCC on AAPL, I'm not also running one on MSFT and GOOGL. I'd rather pair that tech PMCC with positions in financials, healthcare, or a broad ETF like SPY or QQQ to spread the risk across different market drivers.

Choosing the Right LEAPS for Your Account Size

The LEAPS you select directly impacts your position size. Here's how to match your LEAPS selection to your account.

Delta selection. I target a LEAPS delta between 0.70 and 0.85. Higher delta means the LEAPS behaves more like stock ownership but costs more. Lower delta is cheaper but introduces more risk if the stock drops, because the LEAPS loses value faster.

Expiration selection. I buy LEAPS with at least 9 to 12 months of remaining life, ideally longer. Shorter expirations are cheaper but expose you to faster time decay on your long position. The cost difference between a 9-month and 18-month LEAPS is often small relative to the protection that extra time provides. For a deeper look at this decision, see how to choose the best LEAPS expiration for your PMCC.

The account size filter. If a LEAPS costs $7,000 and your account is $50,000, that single position is 14% of your total capital. That's too concentrated. Either find a lower-priced underlying or use an ETF where the LEAPS cost is more manageable. Not every stock is appropriate for every account size.

The Practitioner Edge: My Allocation Framework

In my own trading, I use a tiered approach to PMCC allocation that balances income generation with capital preservation.

Tier 1: Core positions (60% of PMCC capital). These are PMCCs on highly liquid, lower-volatility underlyings like SPY, QQQ, or large-cap dividend stocks. The LEAPS cost is predictable, IV is manageable, and the short call premiums are consistent. These are the positions I expect to run for months.

Tier 2: Satellite positions (30% of PMCC capital). These are PMCCs on individual stocks with slightly higher IV where the short call premiums are richer. More reward, but more management required. I size these 20-30% smaller than my core positions.

Tier 3: Opportunistic positions (10% of PMCC capital). These are PMCCs I open when a specific setup presents itself, often after a volatility spike that makes the short call premium unusually rich. I keep these small and I'm quick to close them. They're not meant to be held for months.

This framework prevents me from concentrating too heavily in any single risk profile while still capturing opportunities as they appear.

Risk Reality Check

PMCC position sizing goes wrong in predictable ways. The most common mistake is over-allocation. Traders see the lower LEAPS cost and open too many positions, effectively creating a leveraged portfolio without realizing it.

The second mistake is ignoring the cost to maintain the position. Your LEAPS loses time value too, especially inside of 6 months. If you're running eight PMCCs and three of them need LEAPS rolls in the same month, the capital required to maintain those positions can surprise you. Always reserve 10-15% of your PMCC capital as a maintenance buffer.

The third risk: a market-wide selloff. If equities drop 15-20%, every PMCC in your portfolio loses value simultaneously. Position sizing and sector diversification are your primary defenses. No strategy survives poor sizing in a drawdown.

Key Takeaways

• Your maximum risk on a PMCC is the LEAPS debit minus short call premium received. No single position should represent more than 5-10% of your total account value at risk.

• For a $50,000 account, plan for four to six PMCC positions. For $100,000, six to ten. Let your risk limit per position determine the count, not the other way around.

• Diversify across sectors, not just tickers. No more than two PMCCs in any single sector to avoid correlation risk during selloffs.

• Match your LEAPS selection to your account size. If a single LEAPS costs more than 10-12% of your account, find a lower-priced underlying or use ETFs.

• Reserve 10-15% of your PMCC capital as a maintenance buffer for LEAPS rolls and adjustments.

The Bottom Line

Capital efficiency is the PMCC's greatest strength. But strength without discipline becomes a liability. The traders who generate consistent income from PMCCs aren't the ones running the most positions. They're the ones who size each position so that no single trade, no single sector, and no single market event can take them out of the game.

Protect your capital first. The income follows.

Size it right, or don't size it at all,

Andy Crowder

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This newsletter is for educational purposes only and should not be considered investment advice. Options trading involves significant risk and is not suitable for all investors. Past performance does not guarantee future results. Always consult with a qualified financial professional before making investment decisions.