The Case for Owning More LEAPS Than You Cover: A Smarter Way to Trade Gold

There's a certain kind of trade that looks foolproof on paper and feels oddly punishing in real life.

Buy an asset. Sell a call. Collect premium. Repeat.

It's the oldest income play in the retail options book. It works well enough that people stop questioning it, until they try to run it on something like gold.

Because gold has a personality. It spends long stretches doing very little, just enough movement to tease you into overwriting too close. Then it moves in a burst and makes you feel like you spent weeks collecting nickels right before a dollar bill blew past your strike.

If you've ever sold covered calls on GLD and thought, "I'm doing the income thing, but I'm always capped when it matters," you're not imagining it. You're bumping into a structural problem, not a personal one.

The good news: there's a cleaner way to build this trade. One that stops wasting capital the way stock-based covered calls often do, and stops overwriting 100% of your upside every single cycle, which is where most of the regret comes from.

The toolkit is familiar: deep in-the-money LEAPS calls and short-dated calls. The twist is simple: the ratio.

Instead of treating the Poor Man's Covered Call as a rigid one-to-one formula, you treat it like what it really is, a structure you can tune.

The Covered Call's Quiet Cost

The classic covered call is easy to explain. Buy 100 shares of GLD, sell one call against it, get paid for time. Simple enough.

The part most traders don't say out loud is what you had to do to earn that premium: you had to fully fund 100 shares.

At $432 per share, that's $43,200 parked in a single position. Even when you're collecting income, a lot of your capital is essentially sitting there, especially if you're selling calls far enough out-of-the-money to avoid constant whipsaws. The trade might be fine. But it's rarely capital-efficient.

And capital efficiency isn't some "maximize returns" gimmick. It's something more valuable and less glamorous: it's what keeps you from forcing trades. It's what lets you hold structure through chop, through drawdowns, through the kind of volatility that makes people do dumb things.

That's the doorway deep ITM LEAPS opens.

Deep ITM LEAPS: Not Leverage…Architecture

A deep-in-the-money LEAPS call is often described as "stock replacement." The phrase is accurate, but it can be misleading, it makes the trade sound like a trick.

It isn't.

A properly chosen deep ITM LEAPS is simply a way to own something that behaves like stock without paying full stock price. The key is understanding where the option's value comes from.

Every call option has two components. Intrinsic value is what the option would be worth if exercised now, the difference between the stock price and your strike. Extrinsic value is the "rent" you pay for time and implied volatility, the part that melts away as expiration approaches.

Deep ITM LEAPS, when selected correctly, are mostly intrinsic. That's why they behave like stock. You're not paying a big pile of extrinsic premium that decays like an ice cube on a summer sidewalk.

In practical terms, a deep ITM LEAPS might carry a delta around 0.75 to 0.85. That means it tends to move like 75 to 85 shares of stock per contract. Two contracts behave roughly like 160 shares. Not perfectly, not permanently, but close enough to build around.

Here's the point that matters most, especially for gold: deep ITM LEAPS don't just change the cost of the position. They change what you can afford to do emotionally and structurally.

Less capital tied up means fewer forced decisions. Less "I have to sell calls aggressively to justify this allocation." More room to operate like a portfolio manager instead of a premium addict.

The Real Problem Isn't the LEAPS, It's the Short Call

Here's the irony most traders miss: PMCC "blowups" rarely have anything to do with the long call. They come from the short call.

More specifically, they come from two habits that feel productive but aren't. Selling calls too frequently because "income" feels like progress. And selling calls too close to the money because the premium looks attractive.

That combination works until it doesn't. On GLD, it tends to stop working in the exact moments that create the most frustration, surprise bursts when gold finally does what you bought it to do.

Gold doesn't reward constant micromanagement. It punishes it.

So the real question becomes: how do you keep the income overlay without turning your GLD exposure into a weekly fight with your short strike?

That's where the ratio PMCC stops being a niche concept and becomes a practical solution.

The Small Adjustment That Changes Everything

Most traders learn the PMCC as a one-to-one trade. Buy one LEAPS, sell one call. That's a perfectly valid default, but it's a default that assumes you always want to overwrite your entire long exposure.

The ratio PMCC simply challenges that assumption.

The most useful version for an asset like gold: buy two deep ITM LEAPS, sell one short call.

That's it. Not fancy. Not a "new strategy." Just a tuning mechanism.

What it accomplishes is subtle but powerful. You still collect premium, but you only cap a portion of your upside. The structure is less likely to force you into constant rolling when GLD does what GLD does. You're building a position that can make money in chop and participate more meaningfully in the occasional trend.

A GLD Example You Can Actually Use

Let's keep this realistic, no hero math, no fantasy fills.

With GLD trading around $432, you buy two January 2028 $360 strike LEAPS calls at approximately $120.20 each (using the midpoint).

These contracts carry a delta of 0.80, meaning each behaves somewhat like 80 shares of GLD. Two contracts give you exposure roughly equivalent to 160 shares.

Total capital deployed: approximately $23,690 for the two LEAPS.

Compare that to owning 200 shares outright at $86,400. You've freed up over $62,000, or 72.6%, in capital while maintaining similar directional exposure.

Against this position, you sell one March 2026 $488 call at around $5.75 (midpoint of the bid-ask).

This short call carries a delta of 0.20 with an 83.83% probability of expiring out-of-the-money, comfortably within that 0.15 to 0.25 delta sweet spot where you're getting paid without making your short strike the main character of your week.

That's the backbone: stock-like long exposure through the LEAPS, conservative short call overlay 46 days out. And because you're only selling one call against two LEAPS, you've deliberately left half your upside unconstrained.

The position costs roughly $17,900 less than a single 100-share covered call position. It generates $575 in premium per cycle. And it doesn't force you to choose between "collect premium" and "participate in the trend" every single month.

Why This Matters for Gold Specifically

GLD tends to create two distinct environments, and most income strategies only work well in one of them.

The first is the long, boring stretch. Gold chops, headlines come and go, the market drifts. This is where income overlays shine. A ratio PMCC still pays you here, you're selling one call, collecting premium, not depending on a trend to justify the trade.

The second is the short, sharp move. Gold breaks, squeezes, gaps, or trends for a few weeks. This is where strict overwriting creates regret. The classic covered call, or a 1-to-1 PMCC, often turns into a management trap right when GLD finally behaves like the reason you wanted exposure in the first place.

The ratio PMCC doesn't eliminate that tension. But it reduces it significantly. You're still overwritten on one unit, but you're not overwritten on all of it. The result is a position that feels less like a constant tradeoff and more like a portfolio layer.

The Trap Hidden Inside "Capital Efficiency"

Deep ITM LEAPS free up capital compared to owning shares. That's the feature.

But it's also the trap.

Freed capital has a way of whispering: "You should deploy me." This is how capital efficiency quietly turns into leverage. And leverage, when it's unintentional, is rarely kind.

For GLD specifically, the most professional use of freed capital is often the most boring. Keep it as buffer. Treat it as ballast. Let it reduce forced decisions.

That cash doesn't need to be productive every day to be valuable. Sometimes its job is to stop you from doing something stupid during a volatility spike.

The behavioral finance research is clear on this point: investors consistently overestimate their ability to handle drawdowns and consistently underestimate how much poor decisions during stress damage long-term returns. A cash buffer isn't dead money. It's insurance against your own worst impulses.

Where Discipline Actually Lives

Here's a framework that keeps most traders out of trouble on the short call side.

Selling at 0.10 to 0.15 delta is "let it run" mode, less income, more room for the underlying to move. Selling at 0.15 to 0.25 delta is the balanced default, reasonable premium, manageable risk. Selling at 0.25 to 0.35 delta means heavier income but a tighter cap and more management headaches.

The closer you sell to the money, the more you turn an income strategy into a management strategy. That might be fine if you want to manage actively. But most income traders don't. They want something repeatable, something that doesn't demand attention every week.

On GLD especially, it's usually smarter to accept slightly less premium in exchange for fewer ugly decisions.

The Hardest Skill: Knowing When Not to Sell

This is where experienced traders separate themselves from everyone else.

There are moments when selling a call against GLD is the "correct" move on paper and the wrong move in practice. If gold is breaking out, volatility is expanding, and price is moving with purpose, you have options beyond "sell the call because it's Monday."

You can sell fewer calls. You can sell farther out. You can skip a cycle entirely and let the long exposure do its job.

Skipping isn't laziness. It's restraint. And restraint is one of the few real edges left in a world where everyone can click the same strategy button.

The great investors, the ones who compound wealth over decades, understand something that most traders never learn: the best trade is often the one you don't make. Every position doesn't need to be "working" at all times. Sometimes the right move is to sit still and let the structure you've built do what it was designed to do.

A Rule Set That Keeps the Strategy Honest

If you want this to behave like a process rather than a collection of clever ideas, you need rules that exist before the trade.

For the LEAPS leg, target 18 to 24 months of duration and a delta around 0.75 to 0.85. Prioritize contracts where intrinsic value dominates, you're not paying for hope, you're paying for exposure. Plan to roll or refresh with roughly six months remaining, before liquidity deteriorates and bid-ask spreads widen.

For the short call, use 30 to 60 days to expiration and target deltas between 0.15 and 0.25. Take profits at 50 to 75 percent of maximum gain, don't get greedy waiting for the last nickel. If tested, don't automatically panic-roll into a loss. First decide whether the market is actually trending or just whipping around.

The best income traders aren't the ones who squeeze every penny from every position. They're the ones who avoid the cluster of bad decisions that come from being too tight, too frequent, too aggressive.

The Bigger Picture: Designing a Role in the Portfolio

This is the part that elevates the strategy beyond pure mechanics.

A covered call is a one-layer structure: own the asset, rent it out. A deep ITM LEAPS structure splits that role into distinct components. The LEAPS serves as your exposure engine, efficient, defined risk. The short calls serve as your income engine, repeatable cash flow. The freed-up cash serves as your stability engine, reducing forced decisions when markets get difficult.

The ratio PMCC is an upgrade to that architecture. It acknowledges a truth that most strategies ignore: markets aren't consistent, so your overwrite shouldn't be either.

If GLD is your diversifier, your hedge, your macro ballast, your "I want exposure but don't want to babysit it" holding, then overwriting 100% of your upside every cycle is a self-inflicted wound. The ratio approach lets you stay paid without feeling trapped.

The Edge Isn't Premium…It's Staying Power

Deep ITM LEAPS can outperform stock-based covered calls for income-style exposure when the goal isn't hype or leverage, but structure. Less capital strain. Defined downside. More flexibility. Fewer forced decisions.

The ratio PMCC is what keeps the whole thing from turning into constant rolling and constant regret, especially on an asset that moves in bursts rather than smooth trends.

The traders who benefit most from this approach aren't the ones trying to maximize buying power. They're the ones using capital efficiency to buy something rarer than returns: staying power.

The ability to keep showing up through chop, through drawdowns, through volatility, without turning the strategy into a full-time job or abandoning it at the worst possible moment.

In the end, that's what separates traders who compound wealth from traders who just trade. Not cleverness. Not aggression. The simple capacity to remain in the game long enough for the probabilities to work.

Probabilities over predictions,

Andy Crowder

Founder & Chief Options Strategist, The Option Premium

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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.