Poor Man's Covered Call (PMCC): LEAPS Income Strategy 2026
The Poor Man's Covered Call (PMCC) lets you run a covered call strategy without owning 100 shares. Instead, you buy a deep in-the-money LEAPS call as your 'stock substitute' and sell short-term calls against it for income. It's the same income strategy with 60-80% less capital required.
What Is a Poor Man's Covered Call?
A Poor Man's Covered Call (PMCC) is a diagonal spread that mimics a covered call. Instead of buying 100 shares of stock (which might cost $10,000-$50,000), you buy a deep in-the-money LEAPS call option (12+ months out) that acts as your stock replacement. Then you sell short-dated out-of-the-money calls against it, just like a traditional covered call.
The LEAPS call has a high delta (0.70-0.90), meaning it moves nearly dollar-for-dollar with the stock. As you sell monthly calls against it, you collect premium that reduces your cost basis on the LEAPS — potentially paying for the entire position over time.
This is one of the most popular capital-efficient income strategies, and it's particularly useful for investors who want covered call income on expensive stocks like AMZN, GOOGL, or TSLA without deploying $20,000-$50,000 per position.
Example: AMZN is at $200. Instead of buying 100 shares ($20,000), you buy a 24-month $160 LEAPS call for $50.00 ($5,000). Delta is 0.82, so it moves like owning 82 shares. You then sell a 30-day $210 call for $3.00 ($300). If AMZN stays below $210, the short call expires worthless and you keep $300. Repeat monthly. Over 12 months, you might collect $3,000-$4,000 in premium — a 60-80% return on your $5,000 LEAPS investment.
When to Use It
- When you want covered call income but can't afford (or don't want to commit) the capital for 100 shares
- On expensive stocks where 100 shares would be $15,000+
- When you have a moderately bullish long-term outlook on a stock
- When you want to diversify your income strategy across multiple names without tying up all your capital
- As a core portfolio income strategy for smaller accounts ($5,000-$50,000)
How to Set It Up
1. Buy a deep ITM LEAPS call: minimum 12 months to expiration, delta of 0.70 or higher (strike well below current stock price) 2. The LEAPS should have at least 70% intrinsic value — avoid paying too much extrinsic/time value 3. Sell a short-dated OTM call: 20-45 DTE, delta of 0.20-0.30 (5-10% above current price) 4. CRITICAL RULE: Never sell a short call with a strike below your LEAPS strike — this creates a position where you can lose even if the stock goes up 5. Roll or let the short call expire, then sell a new one each cycle 6. Close the short call at 50-75% profit and resell
Risk & Reward
Max profit: Short call strike - LEAPS strike - net debit + short call premium collected. Capped at the short call strike. | Max loss: Total debit paid for the LEAPS (if the stock drops well below the LEAPS strike and stays there). In the example: $5,000. | Breakeven: LEAPS strike + net debit - premiums collected. Improves with each short call cycle.
Best Brokers for This Strategy
Tastytrade was practically built for the PMCC — its platform defaults to this diagonal setup, offers free-to-close pricing on the short leg, and provides excellent LEAPS chain access. IBKR offers the lowest commissions and best fills for LEAPS contracts, which tend to have wider spreads. thinkorswim/Schwab has strong analysis tools for modeling PMCC returns over multiple short-call cycles. See our tastytrade review.
Not financial advice. Always do your own research.
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