Which Strike Price Is Best for a Poor Man’s Covered Call? A Practical Guide for Options Traders

The Poor Man’s Covered Call (PMCC) is a flexible, capital-efficient strategy I’ve used for decades to generate reliable income while reducing risk. But one question always comes up from readers: “What strike should I choose when buying the LEAPS?”

This isn’t a minor detail, it’s the foundation of the trade. The strike price you choose affects your delta exposure, capital outlay, breakeven price, probability of success, and how you manage the position over time.

In this article, I’ll walk you through exactly how to think about LEAPS strike selection, compare different expirations and delta levels, and give you a framework to tailor the setup to your goals, whether you’re running a long-term portfolio or looking for a short-term income pop.

PMCC Strategy Refresher

A Poor Man’s Covered Call is essentially a diagonal debit spread:

• Buy a long-dated, deep in-the-money call (LEAPS)

• Sell a shorter-term, out-of-the-money call (30–45 days)

The long LEAPS gives you stock-like exposure. The short call generates income. But the key variable is the strike price of that LEAPS, because it determines everything from delta to cost to downside risk.

The Strike Price Dilemma: What Are You Really Buying?

When you buy a LEAPS call, you’re substituting it for long stock. But unlike stock, that call behaves more like a leveraged instrument. It doesn’t move dollar-for-dollar with the underlying asset, it moves based on delta, which is affected by the strike you choose.

Let’s look at three critical strike zones for SPY:

1. Deeper in-the-money (higher delta: ~0.80–0.85)

2. Moderately in-the-money (delta: ~0.75–0.80)

3. At-the-money or slightly in-the-money (delta: ~0.65–0.74)

Here’s how they compare.

SPY Example: Comparing LEAPS Strikes Across Expirations

Underlying: SPY @ $468
Short Call: 30-day 495 strike @ $2.87 premium (constant across setups)

🔹 Strike A: Deep ITM – 350 Call (Delta ≈ 0.80–0.85)

• January 2024 Expiration (793 DTE)

• Cost: $134.55

• Delta Exposure: ~80–85 shares of SPY

• Touch Probability: 57.86%

✅ Pros: Closest to replicating stock ownership; smoother P&L curve
⚠️ Cons: Highest capital requirement; less efficient for compounding

🔹 Strike B: Moderately ITM – 380 Call (Delta ≈ 0.75)

• January 2024 Expiration (793 DTE)

• Cost: $112.50

• Delta Exposure: ~75 shares of SPY

• Touch Probability: 68.12%

✅ Pros: Solid balance of capital outlay and directional exposure
⚠️ Cons: Slightly lower responsiveness in strong bull markets

🔹 Strike C: Lightly ITM – 400 Call (Delta ≈ 0.70)

• January 2024 Expiration (793 DTE)

• Cost: ~$95 (varies slightly)

• Delta Exposure: ~70 shares of SPY

• Touch Probability: >70%

✅ Pros: Lowest cost; ideal for shorter holding periods or diversified portfolios
⚠️ Cons: Higher gamma risk; more volatility if the trade goes against you early

Strike Selection Framework: Match the Strike to Your Strategy

Ask Yourself:

1. How long do I plan to hold this trade?

2. How much capital am I allocating per trade or position?

3. Am I running a concentrated position or a diversified PMCC portfolio?

4. Do I want smoother returns or more aggressive leverage?

Here’s a cheat sheet based on your answers:

Real-World PMCC Portfolios

In my Wealth Without Shares and All-Weather portfolios, I lean heavily toward 0.75–0.80 delta strikes, usually 18+ months out. Why?

• They give me a comfortable cushion if the stock pulls back

• They’re not overly sensitive to daily moves, reducing emotional management

• They let me sell 12–18 cycles of short calls and lower my cost basis gradually

I can’t stress this enough: the strike you choose must reflect your capital constraints and your style of trading. Are you running 10 positions with a $50,000 portfolio? Or are you rotating a few names monthly?

Choose accordingly.

Bonus Tip: Mixing Strikes Across a Portfolio

You don’t need to stick to one strike across all positions. In fact, I often blend strikes:

• Use deep ITM (0.85 delta) for core holdings like SPY or AAPL

• Use moderate ITM (0.75 delta) for income-generating trades in IWM, DIA

• Use lighter ITM (0.70 delta) for shorter-term plays or sector rotation names

This creates a natural risk ladder across your PMCC portfolio.

Final Takeaway

The right strike price for your PMCC trade isn’t a one-size-fits-all decision. It’s a function of delta, cost, time horizon, and comfort with active management.

The goal is not to find the "perfect" LEAPS, but the right one for your trading objective.

If you’re unsure, lean toward a 0.75 delta LEAPS with 18–24 months to expiration. It offers an excellent middle ground between cost, delta, and flexibility.

You can always roll your LEAPS up or out as the trade develops—but you can’t undo a poor entry strike. Get the foundation right, and the rest of the strategy becomes a lot easier to manage.

Probabilities over predictions,

Andy Crowder

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