Poor Man's Covered Call

Buy a long-dated, deep in-the-money call (a LEAPS) and sell shorter-term out-of-the-money calls against it, like a covered call with far less capital.

Written by the MarketWrench team. Examples are worked with the same Black-Scholes model used in our calculators (4% rate, no dividends unless stated) and are reviewed for accuracy before publishing. How we create content.

The chart shows profit/loss when the short call expires. The long call is valued with Black-Scholes using the days left and IV you enter, so it is an estimate.

When traders use it

You are moderately bullish long-term and want covered-call style income without paying for 100 shares.

Formulas (per share; ×100 per contract)

Key risks

The LEAPS can lose a lot if the stock falls, with no dividend and no share ownership. If the stock jumps past the short strike, gains are capped. Early assignment on the short call leaves you short shares.

How it works

A 0.80+ delta LEAPS moves almost like the stock. Selling a 30-day OTM call against it collects premium each month. The structure is a diagonal spread: different strikes and different expirations.

Worked example HYPOTHETICAL

Market outlook: when to use it

Use when: Long-term bullish view with a desire for income and lower capital use.

Avoid when: If you need dividends or voting rights, or in a stock prone to sharp drops.

The Greeks, in plain words

Choosing strikes and expiration

LEAPS: 0.75–0.85 delta, 6–24 months out. Short call: 0.20–0.30 delta, 30–45 days. Make sure the short strike is above LEAPS strike + net debit, so an assignment can't lock in a loss. See how to pick a strike and expiration.

Managing the trade

Roll the short call each month. If the stock rallies past it, roll up and out or close the spread. Roll the LEAPS when it has about 3–6 months left.

Common mistakes

• Short strike too low, so assignment locks in a loss.
• Using a LEAPS with too little delta, which behaves less like stock.
• Forgetting that a falling stock hurts the LEAPS more than the small call premium helps.

FAQ

Why is it called 'poor man's'?
Because it imitates a covered call for a fraction of the cost of 100 shares.

Do I get dividends?
No. Only shareholders receive dividends.

Explained simply

You pay about $2,521 for a long-term call that acts like 100 shares, then earn $66 by selling a 30-day call. If the stock rises toward $110, both work for you.

Read next

Covered Call vs Cash-Secured Put · How to Pick a Strike and Expiration · All Learn articles

Related strategies

Covered Call · Calendar Spread · Long Call

Watch: further explanation