Options strategies › Poor Man's Covered Call with LEAPS
Poor Man's Covered Call with LEAPS
Poor Man's Covered Call High-Conviction LEAPS
A poor man's covered call replaces the stock in a covered call with a long-dated deep-ITM call, cutting the capital outlay sharply while still letting you sell calls for income.
You're bullish long-term but want stock-like exposure for a fraction of the cost.
Pillar 1 · Illustrative setup
How this example is built
Buy a deep in-the-money, long-dated call (a LEAPS) to stand in for 100 shares, then sell near-term out-of-the-money calls against it, month after month.
Illustrative inputs only — not live prices.
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This structure has two expirations, so its profit at the near-term expiry depends on implied volatility and the longer-dated option’s remaining value — which needs an options-pricing model, not a fixed payoff. Model each leg’s risk separately; no single max-profit number is shown here on purpose.
Pillar 2 · When & why
Why this fits High-Conviction LEAPS
Traders pick a long call with a high delta (around 0.80+) so it tracks the stock closely, and structure the short call so its premium more than covers the long call's time decay. The appeal is capital efficiency; the cost is that the LEAPS has no dividend and does decay.
This is a two-expiration, diagonal position, so the profit at the short call's expiration depends on the LEAPS's remaining value — which is set by implied volatility and time, not a fixed formula. Your capital at risk is the LEAPS premium; a sharp drop can hurt a leveraged position more than owning shares outright.
Pillar 3 · Risk / reward
Why there is no single payoff number here
This structure has two expirations, so its profit at the near-term expiry depends on implied volatility and the longer-dated option’s remaining value — which needs an options-pricing model, not a fixed payoff. Model each leg’s risk separately; no single max-profit number is shown here on purpose.