Poor Man's Covered Calls on Growth Stocks: A Capital-Efficient Approach to Monthly Income

Growth stocks have taken investors on a wild ride over the past year.

Some have been crushed. Others have quietly built bases. And a few, like Dutch Bros (BROS),are sitting in that interesting space where elevated implied volatility meets reasonable valuation, creating exactly the kind of setup that options sellers dream about.

But here's the thing: most traders look at a stock like BROS, see the $55 price tag, and immediately think they need $5,500 to run a covered call. They're not wrong, if they're doing it the traditional way. But there's another path, one that requires a fraction of that capital while maintaining the same income-generating mechanics.

It's called the Poor Man's Covered Call. And when you understand how it works, you'll wonder why anyone with limited capital would ever tie up thousands of dollars in shares when they don't have to.

The Strategy: What It Is and Why It Works

A Poor Man's Covered Call (PMCC) is essentially a long call diagonal debit spread designed to mimic a covered call position, but at a fraction of the cost.

Instead of buying 100 shares, you purchase a deep in-the-money LEAPS call option as your "stock replacement." Then, just like a traditional covered call, you sell short-term calls against it to generate premium income.

The capital savings? In most cases, you'll spend 65% to 85% less than you would buying shares outright. That's not a typo. Those savings alone should be reason enough to give this strategy serious consideration.

Here's why it works: A deep ITM LEAPS call with a high delta moves almost dollar-for-dollar with the underlying stock. You're getting equity-like exposure without the equity-sized capital commitment. And because LEAPS have at least one year until expiration, they don't suffer from the accelerated time decay that destroys shorter-dated options.

You're essentially renting stock-like exposure instead of buying it.

The Setup: Dutch Bros (BROS)

Let me walk you through a real example using Dutch Bros, a growth stock that's been on my radar.

Current Market Conditions:

• Stock Price: ~$55

• Implied Volatility: 78.11%

• Historical Volatility: 45.95%

• IV Rank: 60.84%

• IV Percentile: 85%

That IV percentile of 85% tells us something important: implied volatility is higher than it's been 85% of the time over the past year. For premium sellers, that's favorable terrain. We're getting paid more for the options we sell.

Step 1: Buying the LEAPS (The Stock Replacement)

When selecting a LEAPS call, I follow a specific delta guideline: look for a delta between 0.75 and 0.85.

Why this range? A delta of 0.80 means your LEAPS will capture roughly 80 cents of every dollar move in the stock. That's close enough to stock ownership for income-generation purposes, while still benefiting from the leverage that options provide.

Looking at the January 2028 expiration, which gives us nearly two years of runway, here's what the option chain shows:

The 45-strike call with a delta of 0.80 fits our criteria perfectly. It's trading around $20.00 (splitting the bid-ask, always use limit orders, never pay the ask).

Capital Required for LEAPS: $2,000

Compare that to buying 100 shares at $55: $5,500.

Capital Savings: $3,500, or 63.6%

That's capital you can deploy elsewhere, into other PMCCs, different strategies, or simply keep as dry powder. Diversification becomes possible at position sizes that would otherwise lock you into a single concentrated bet.

Step 2: Selling the Short Call (The Income Engine)

Now we generate income by selling calls against our LEAPS position.

My guidelines for short call selection:

• Expiration: 30 to 60 days until expiration

• Delta: 0.20 to 0.40 (probability of profit between 60 to 80%)

• Note: With lower-priced or more volatile stocks, you may need to move closer to 0.30 to 0.40 delta to collect meaningful premium

Looking at the March 20, 2026 expiration (36 days out):

The 62.5-strike call with a delta of 0.29 offers a nice balance: 75% probability of expiring worthless, and we can sell it for approximately $1.30.

Premium Collected: $130

The Complete Position

Let's put it all together:

Buy: BROS January 21, 2028, 45-strike LEAPS call @ $20.00 ($2,000)

Sell: BROS March 20, 2026, 62.5-strike call @ $1.30 ($130)

Net Debit: $1,870 ($2,000 - $130)

Maximum Risk: $1,870 (the net debit paid)

Breakeven: $63.70 per share equivalent ($45 strike + $18.70 net debit)

Return on Capital (if short call expires worthless): 6.95% in 36 days

Annualized? That works out to roughly 70% per year if you could repeat this cycle consistently.

Now, will you actually achieve 70% annually? Probably not. Markets don't cooperate perfectly, you'll have losing months, and position management takes time and attention. But the potential demonstrates why this strategy deserves a place in your toolkit.

Understanding the Position Greeks

Here's where it gets interesting, and where many traders miss the nuance.

Your net position delta is the difference between your long and short call deltas:

Net Delta: 0.80 - 0.29 = 0.51

This means your position will gain approximately $51 for every $1 move higher in BROS, and lose approximately $51 for every $1 move lower. The position is inherently bullish, but not as directionally aggressive as owning shares outright.

Key Insight: Unlike a traditional covered call where gains are capped at the short strike, a PMCC's gains aren't fully capped until both options reach parity delta. If BROS rallies hard, your long LEAPS gains can exceed the losses on your short call, at least until both deltas converge near 1.0.

This creates more upside participation than most traders realize.

Managing the Position

If the stock stays flat or rises modestly: The short call decays, you keep the premium, and you sell another call when this one expires or you buy it back early.

If the stock drops: Your LEAPS loses value, but so does your short call obligation. You can roll the short call down and out for additional credit, or simply let it expire and reassess.

If the stock rallies sharply: This is where you have choices. You can:

1. Close the entire position and book profits

2. Buy back the short call (at a loss) and continue holding the LEAPS

3. Roll the short call up and out for a credit

The flexibility is one of the strategy's underappreciated advantages.

The Ratio PMCC: More Delta, More Upside, Still Generating Income

Here's where things get interesting for traders with a stronger bullish conviction.

The standard PMCC, one LEAPS, one short call, is inherently a neutral-to-moderately-bullish position. Your net delta sits around 0.50, and you're essentially trading upside participation for income. That's a reasonable tradeoff for many market conditions.

But what if you're more bullish? What if you want to capture more of the move while still generating premium income?

Enter the Ratio Poor Man's Covered Call: two LEAPS contracts against one short call.

The Setup Using BROS:

Buy: 2 BROS January 21, 2028, 45-strike LEAPS calls @ $20.00 ($4,000)

Sell: 1 BROS March 20, 2026, 62.5-strike call @ $1.30 ($130)

Net Debit: $3,870

Net Delta: (2 × 0.80) - 0.29 = 1.31

Look at that net delta. You now have more directional exposure than owning 100 shares outright, plus you're still collecting premium income from the short call.

Why Would You Do This?

The ratio PMCC is designed for traders who believe the stock has meaningful upside but still want some income buffer during the holding period. You're not giving up the farm on the short call because you have two LEAPS working for you.

Think of it this way: with the standard PMCC, a $10 rally in BROS generates roughly $510 in gains (0.51 delta × $10 × 100). With the 2:1 ratio PMCC, that same $10 move generates approximately $1,310 (1.31 delta × $10 × 100).

You've more than doubled your upside participation while still collecting $130 in premium.

The Tradeoff

Nothing is free in options trading. The ratio PMCC has a steeper risk profile on the downside. With two LEAPS contracts, you have $4,000 at risk instead of $2,000. A sharp decline in BROS hurts twice as much.

The short call premium provides some cushion, but $130 against $4,000 in LEAPS exposure is a 3.4% buffer. That's meaningful, but it won't save you from a 20% decline in the stock.

When to Consider the Ratio PMCC:

• You have strong conviction in the underlying's direction

• You want equity-like (or better) delta exposure with some income generation

• You're comfortable with the increased capital at risk

• You view the short call as a yield enhancer, not a hedge

When to Stick with the Standard 1:1 PMCC:

• You're more neutral-to-moderately bullish

• Capital preservation is a priority

• You want a more balanced risk/reward profile

• You're newer to diagonal spreads and want to keep things simpler

A Middle Ground: The 3:2 Ratio

Some traders prefer a 3:2 structure, three LEAPS contracts against two short calls. This creates a net delta around 1.82 (3 × 0.80 - 2 × 0.29 = 1.82) while generating more premium income. It's a flexible approach that sits between the standard PMCC and the more aggressive 2:1 ratio.

The key is understanding what you're optimizing for: income, upside participation, or some blend of both. There's no universally correct answer, only the answer that fits your outlook and risk tolerance.

What Could Go Wrong?

Let's be direct about the risks:

Time Decay on the LEAPS: Yes, your long option does decay, just much slower than shorter-dated options. With 708 days until expiration, theta isn't your primary concern yet. But as you get inside 180 days, that changes.

Volatility Contraction: If IV collapses (say, after earnings), both your options lose extrinsic value. The short call benefits, but your LEAPS may take a hit.

Sharp Decline in the Stock: The LEAPS can lose significant value if BROS drops materially. You're leveraged to the downside too. This is not a hedged position.

Assignment Risk: If the short call goes ITM, you could be assigned. You'd then exercise your LEAPS to cover the obligation. Not catastrophic, but it closes the position earlier than you might like.

Who Should Consider This Strategy?

The PMCC is particularly well-suited for:

• Traders who want covered call income but lack the capital for 100 shares

• Those looking to diversify premium-selling across multiple positions

• Investors who are moderately bullish on a stock but want some income buffer

It's not ideal for:

• Those who need downside protection (consider a collar instead)

• Investors who want pure income with no directional exposure

• Anyone uncomfortable with the mechanics of diagonal spreads

Quick Reference: PMCC Guidelines

LEAPS Selection:

• Expiration: 12+ months out (I prefer 18-24 months)

• Delta: 0.75 to 0.85

• Strike: Deep in-the-money

Short Call Selection:

• Expiration: 30-60 days

• Delta: 0.20 to 0.40

• Probability of Profit: 60-80%

Ratio Variations:

• Standard (1:1): One LEAPS, one short call - balanced income/growth

• Bullish (2:1): Two LEAPS, one short call - more delta, more upside

• Moderate (3:2): Three LEAPS, two short calls - middle ground approach

Position Management:

• Monitor net delta as both options change

• Roll short calls before expiration when profitable

• Close or adjust if stock moves significantly against you

Final Thoughts

The Poor Man's Covered Call isn't magic. It's arithmetic, the same covered call math you already know, applied with options instead of shares.

But that simple substitution changes everything about capital efficiency. Instead of deploying $5,500 for one position, you deploy $2,000 and have the flexibility to build a diversified portfolio of income-generating positions.

In a world where capital is finite and opportunity is everywhere, that flexibility matters.

Risk is always in the eye of the beholder. What I've presented here is one approach to one strategy on one stock. Your job, as it always is, is to evaluate whether it fits your risk tolerance, your capital constraints, and your market outlook.

The tools are here. The mechanics are straightforward. What you do with them is up to you.

Probabilities over predictions,

Andy

P.S. This is the kind of case study I publish regularly, real math, real management, real lessons. If you want more trade breakdowns, clearer entry and exit rules, and the "why" behind the structures, that's exactly what Wealth Without Shares is built for.

📩 Join thousands of readers building a professional foundation.

Subscribe to The Option Premium and learn to trade with confidence and clarity.

📺 Want more education and community?
🎥 Subscribe on YouTube for in-depth tutorials and live trade breakdowns.
📘 Join the conversation on Facebook for exclusive insights, discussions, and real-time updates.

Disclaimer: This is educational content only. Not investment advice. Options involve risk and aren't suitable for all investors. Examples are illustrative. Real results will vary. Talk to professionals before you risk real money.