Poor man's covered call
A covered call without the $20,000 of stock
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A covered call rents out 100 shares you own — often $20,000 of stock. The poor man’s version rents out a LEAPS instead. Same rent check, a fraction of the cash.
A classic covered call needs 100 real shares parked in your account — frequently tens of thousands of dollars. The poor man’s covered call (PMCC) swaps those pricey shares for a deep-in-the-money LEAPS call, then sells a short-term call against it for income. Same rent-collecting idea, far smaller wallet. That is where the nickname comes from.
If you met LEAPS in the last lesson, this is where they earn their keep. Instead of renting out a house you bought outright, you rent out a long lease you hold cheaply — and the tenant’s check still clears.
Two legs, two jobs
The position is a team of two. The long LEAPS is your stock substitute — the thing you “own.” The short call is the tenant you rent to each cycle. Because your long leg sits at a lower strike than the call you sell, you can always deliver if you get assigned. You are covered, just like the classic version.
The gap between the two strikes is your maximum room to run — the most the position can gain if the stock climbs. Set the strikes thoughtfully and that spread defines your best-case profit before you ever place the trade.
Long LEAPS = lower strike, deep in the money (your shares). Short call = higher strike, near-term (the rent). The low long leg backing the high short leg is what makes it “covered.”
Collect rent, rinse, repeat
The rhythm is simple. Buy the long LEAPS once as your base. Then, each cycle, sell a shorter-term call at a higher strike and pocket the premium. If that short call expires worthless, you keep the cash and sell another one against the same LEAPS. The long leg stays put while the short leg spins off income month after month.
It is the covered-call wheel of income, just built on a lease instead of a deed. The base does the holding; the short calls do the earning.
One leg you hold for the long haul, one you rent out every cycle. The base stays; the rent keeps coming.
Cheaper — but not risk-free
Because a LEAPS costs far less than 100 shares, your capital at risk is smaller and the premium you collect is a bigger percentage of what you put up. That capital efficiency is the entire reason the strategy exists — the same income idea, more return per dollar tied up.
But here is the honest part: unlike real shares, your LEAPS has an expiration date and can lose value if the stock falls hard. Real shares can sit through a slump for years; a LEAPS bleeds time value and eventually dies. Smaller ticket, bigger percentage rent — but a base with a shelf life.
A sharp drop in the stock hurts your LEAPS more than it would hurt 100 shares, and the clock is always running on it. The PMCC is efficient, not invincible — mind the expiration on your base.
The PMCC fits a trader who is moderately bullish, wants covered-call-style income, and does not have (or does not want to tie up) the full price of 100 shares. Same game, smaller stake.
LEAPS as your base, short calls as your rent, a fraction of the cash at risk — just respect the shelf life on that long leg. Next up, we sprint to the other end of the clock: options with only hours left to live. 🏚️