After trading PMCCs for a few years, I've realized this isn't just a cheaper alternative—it's more capital-efficient with similar income potential. But mess up the setup, and you'll bleed money fast.

What is a PMCC?

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A PMCC mimics a traditional covered call but uses a long-term deep ITM call option (LEAP) instead of owning 100 shares.

PMCC Payoff Profile

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• Max Loss (left flat): Net debit paid—capped, unlike stock ownership
• Rising diagonal: Profit increases between LEAP strike and short strike
• Max Gain (right flat): Capped above short call strike
• Breakeven: LEAP strike + net premium paid

The Two Components

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Step-by-Step Setup: AMD Example

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AMD at $219 (January 2026)

graph LR
    A[Buy LEAP] --> B[Sell Short Call]
    B --> C[Collect Premium]
    C --> D[Manage/Roll]
    D --> B

Managing Your Position

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Critical Rules:

1. Roll before expiration - Assignment destroys your LEAP's time value
2. Maintain delta spread - Keep LEAP delta 0.50+ higher than short call delta
3. Avoid earnings - Close or roll short call before announcements

Risks to Respect

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PMCC vs. Traditional Covered Call

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Quick Checklist

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1. ✅ Choose quality underlying (large-cap, bullish outlook)
2. ✅ Buy deep ITM LEAP (12+ months, 0.80+ delta)
3. ✅ Sell 30-45 day OTM call (0.20-0.35 delta)
4. ✅ Set reminders to check weekly
5. ✅ Roll before expiration or assignment
6. ✅ Start with one contract, scale slowly

Sources:

• AAPL Stock Price - Yahoo Finance
• AMD Stock Price - Yahoo Finance

Disclaimer: This article is for educational purposes only and is not financial advice. Options trading involves significant risk.

Think of it as renting out your stocks - you get paid rent (the premium), but you might have to sell your stocks at a predetermined price if they're "called away."

The Mechanics

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Components of a Covered Call

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1. Long Stock Position: You own 100 shares of stock (or multiples of 100)
2. Short Call Option: You sell 1 call option contract per 100 shares
3. Strike Price: The price at which you agree to sell your shares
4. Premium: The income you receive for selling the call option
5. Expiration Date: When the option contract expires

Visual Representation

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graph TD
    A[You Own 100 Shares
Current Price: $50] --> B{Sell 1 Call Option}
    B --> C[Strike Price: $55
Premium Received: $2/share
Expiration: 30 days]
    C --> D{At Expiration}
    D -->|Stock < $55| E[Keep Shares
Keep Premium
Total Profit: $200]
    D -->|Stock > $55| F[Shares Called Away
Sell at $55
Profit: $500 + $200 = $700]

Practical Example

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Let's walk through a real-world scenario:

Setup

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• Stock: Apple (AAPL)
• Current Price: $180 per share
• Shares Owned: 100 shares
• Total Investment: $18,000

The Trade

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You sell 1 call option:

• Strike Price: $190
• Premium: $3.50 per share
• Expiration: 30 days
• Premium Received: $350 (100 shares × $3.50)

Possible Outcomes

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Day 0:  Stock at $180, Sell call for $3.50/share
Day 30: Stock at $185 (below strike)

Result:
- Keep your 100 shares
- Keep the $350 premium
- Annualized return on premium: ~23% ($350/$18,000 × 12 months)
- Can sell another call option next month

Day 0:  Stock at $180, Sell call for $3.50/share
Day 30: Stock at $200 (above strike)

Result:
- Shares called away at $190 (Your stock gets sold at $190)
- Profit on shares: $1,000 ($190 - $180 × 100)
- Premium kept: $350
- Total profit: $1,350
- Missed gains: $1,000 (stock went to $200, but you sold at $190)

Visual P&L Diagram

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Real Broker Example

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When to Use Covered Calls

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Risk/Reward Profile

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Maximum Gain

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Max Profit = Premium Received + (Strike Price - Stock Purchase Price) × 100

Example: $350 + ($190 - $180) × 100 = $1,350

Maximum Loss

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Max Loss = (Stock Purchase Price × 100) - Premium Received

Example: ($180 × 100) - $350 = $17,650

Note: This is the same risk as owning the stock, minus the premium collected. Only sell covered calls on stocks you actually want to own. Quality bluechips stocks

Breakeven Point

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Breakeven = Stock Purchase Price - Premium per Share

Example: $180 - $3.50 = $176.50

Visual Comparison: Covered Call vs Buy & Hold

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graph LR
    A[Stock Position] --> B[Buy & Hold Strategy]
    A --> C[Covered Call Strategy]

    B --> D[Unlimited Upside
Full Downside Risk
No Premium Income]

    C --> E[Capped Upside
Reduced Downside
Premium Income]

    classDef traditional fill:#3b82f6,stroke:#2563eb,color:#fff
    classDef enhanced fill:#f59e0b,stroke:#d97706,color:#fff

    class B traditional
    class C enhanced

Advanced Considerations

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Rolling the Option

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If the stock approaches your strike price and you want to keep your shares, you can "roll" the option:

Step 1: Buy back the current call (close position)
Step 2: Sell a new call with later expiration or higher strike

Example:

• Current: $190 strike expiring in 5 days, stock at $189
• Action: Buy back for $2, sell $195 strike 30 days out for $4
• Net credit: $2 per share ($200 total)

Real-World Performance

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Monthly Income Example

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Portfolio: 1,000 shares across 10 stocks (100 shares each at avg $100/share)

Assumptions: All calls expired worthless (stocks stayed below strikes)

Key Takeaways

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1. Income Generation: Covered calls provide consistent premium income. Aim for 85% profit capture (e.g., close the position when you've earned most of the premium) and exit before expiry to minimize assignment risk. Unless you want your stocks to be sold.
2. Limited Upside: Your gains are capped at the strike price
3. Downside Protection: Premium reduces cost basis but doesn't eliminate risk
4. Best for Flat Markets: Works well when stocks trade sideways
5. Flexibility: You can adjust by rolling options or letting them expire

Common Mistakes to Avoid

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Conclusion

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Covered calls are a conservative options strategy that can enhance returns in neutral to slightly bullish markets. They work best when you:

• Own quality stocks you're comfortable holding long-term or want to purchase new stocks (minimum 100)
• Want to generate additional income from your portfolio
• Accept capping your upside for premium income
• Have realistic expectations about returns

Remember: No strategy is perfect for all market conditions. Covered calls are just one tool in your investing toolkit.

Disclaimer: This is educational content only. Options trading involves risk and is not suitable for all investors. Do your research!

Covered call payoff diagram

To enter a poor man's covered call, buy an in-the-money (ITM) call option and sell an out-of-the-money (OTM) call option with a shorter-dated expiration.

The longer-dated, deep ITM call acts similar to a long stock position because of its high positive delta. However, the call option has a much lower capital requirement than owning 100 shares of the stock.

The short OTM call is sold on a recurring basis to generate income, but limits the position's upside potential.

Poor man's covered call vs. covered call

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There are a few key differences between a poor man's covered call and traditional covered calls. As the name implies, a poor man's covered call is a less expensive version of a covered call.

A covered call strategy involves buying a stock and selling an OTM call. The key benefit of a covered call is that it allows the trader to generate income from selling the call. The premium received reduces the equity position's cost basis and risk and establishes an upside price target.

However, if the short call option is ITM on or before its expiration, the option holder can choose to call the shares away, and you'd be obligated to sell shares at the option's strike price.

A PMCC can reduce some of the risks of a traditional covered call strategy. Buying an equity position requires more capital than buying a call option. Call options leverage owning 100 shares (per contract) without risking as much capital.

Poor man's covered calls replace the long equity position with a deep ITM call. The initial debit paid is the maximum possible loss for the call option, no matter the underlying's price.

A trader with an equity position has the same defined risk (the total cost of the position). However, the capital outlay for an equity position is substantially more than the same notional exposure via a call option.

Capital Comparison Example

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For example, 100 shares of stock at $800 a share requires $80,000 in capital. In comparison, a long-dated, deep ITM call option may cost $9,415, a fraction of the long equity position's cost.

Long stock vs long call position

Furthermore, if the stock's price goes down by 50%, you would lose $40,000 with the long equity position, while the PMCC's maximum loss is the cost of the premium ($9,415 in this example).

Poor man's covered call risks

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For example, if you expect a stock to hit the upper price target sometime in the next six months, you'll want to choose an option with at least a six-month expiration.

By comparison, long equity positions are not constrained by an expiration date. As mentioned, the short call limits the position's upside potential. If the underlying stock price exceeds the call option, you forfeit any gains above the contract's strike price.

However, the short call also reduces risk by continuously reducing the position's cost basis.

Automating PMCC with bots

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Open a long call position

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PMCCs typically have long-dated expirations, or LEAPS, because the longer time frame more closely resembles a stock position and allows you to sell multiple covered calls over the life of the LEAP to reduce your cost basis.

Deep in-the-money calls are generally used, because higher delta options more closely resembles a stock position. The closer the contract's delta is to 1, the more the option acts like 100 shares.

This bot uses 150 DTE and a 0.80 delta for the long call. We also included decisions confirming sufficient capital is available and the bot's position limits have not been reached.

Open long call

Open the short call

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Before adding the covered call, the bot confirms there is a long call already open in the specific ticker and a short call spread is not yet open.

The short call spread must expire before the long call. The bot opens a short call 30 days from expiration at the 0.30 delta in this example.

*The autotrading platform does not support naked option selling; the short call component of the strategy must be a call spread

Create a monitor automation to manage each position

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The bot closes all open positions when the profit is greater than $150 or the total P/L is -$150.

Poor man's covered call monitor automation