Covered Call vs Poor Man's Covered Call
Updated 6 June 2026 · by Theo Chen
Both sell a call to collect premium. The only question is what backs that short call: 100 real shares, or a long-dated LEAPS call standing in for them. That one substitution swaps a big capital outlay for leverage - and trades away dividends and simplicity for a higher return on capital. Here is how to choose.
The short verdict
Run a covered call if you have the capital, want to own the stock, and value dividends plus simplicity - shares never expire, so it is the lower-maintenance income trade. Run a poor man's covered call if you are capital-constrained and want the same income for far less cash, and you are comfortable managing a diagonal and giving up dividends. Covered call = ownership and ease; PMCC = leverage and efficiency.
Side by side
| Covered Call | Poor Man's Covered Call | |
|---|---|---|
| Long leg | 100 shares of stock | One deep-ITM LEAPS call |
| Capital required | Full price of 100 shares | A fraction (the LEAPS debit) |
| Dividends | Yes - you own the shares | No - you hold an option |
| Long-leg expiration | Never - shares don't expire | LEAPS decays and expires |
| Max risk | Stock to zero, less premium | ~ the net debit (defined) |
| Complexity | Simple | A diagonal across two expirations |
| Best for | Owners with capital, dividend stocks | Capital-constrained, leverage-tolerant |
| Bottom line | Pick if you have capital and want ownership plus dividends | Pick if capital is tight and you want the same income for less |
The covered call: own the stock
A covered call is the simplest income overlay there is: hold 100 shares, sell a call above the price, keep the premium. You own a real asset, so you collect any dividends, the position never expires, and there is nothing to roll on the long side. The cost is capital - you have to fund the full 100 shares - which caps your return on capital. It suits an investor who wants to own the stock anyway and earn a little extra yield on top.
Strengths
- You own the shares - dividends included
- Long leg never expires or decays
- Simple to run and roll
Trade-offs
- Ties up the full cost of 100 shares
- Lower return on capital
- Full downside exposure below breakeven
The poor man's covered call: rent the leverage
The PMCC swaps the 100 shares for a deep-in-the-money LEAPS call that moves nearly dollar-for- dollar with the stock but costs a fraction as much. Sell a near-term call against it and you have a diagonal that mimics the covered call's income on far less capital - so the return on the dollars you commit is higher. The catch is real: the LEAPS bleeds time value and eventually expires, you collect no dividends, and a sharp drop hurts the long call more than the premium cushions. It is a leveraged, more active version of the same idea.
Strengths
- A fraction of the capital of 100 shares
- Higher return on capital
- Defined max risk (about the net debit)
Trade-offs
- No dividends; LEAPS decays and expires
- A diagonal to manage across two expirations
- Sharp drops hurt the long call more
Who should pick which
- Pick the covered call if: you want to own the stock, the dividend matters, you have the capital, and you value a simple position that never expires.
- Pick the PMCC if: capital is tight, you want a higher return on the cash you commit, you do not need the dividend, and you are comfortable managing a diagonal.
- New to this? Master the covered call on shares first; the PMCC adds real complexity and is best taken on once the basics are second nature.
Frequently asked questions
What is the difference between a covered call and a poor man's covered call?
A covered call is 100 shares of stock with a call sold against them. A poor man's covered call (PMCC) replaces those 100 shares with a single deep-in-the-money LEAPS call - a long-dated option that behaves like the stock - and sells a near-term call against it. The PMCC reaches for the same income with a fraction of the capital, at the cost of more moving parts and no dividends.
Why would I use a LEAPS instead of just buying the shares?
Capital efficiency. A deep-in-the-money LEAPS might cost a quarter to a third of what 100 shares cost, yet move almost dollar-for-dollar with the stock. That frees up cash and lifts your return on capital. The trade-off is that the LEAPS slowly loses time value, eventually expires, and pays no dividend - none of which is true of owning the shares outright.
Which one is riskier?
It depends what you mean by risk. The covered call ties up far more capital, but the shares never expire and you collect dividends while you wait. The PMCC risks less dollars (your max loss is roughly the net debit), but the long LEAPS decays and a sharp drop hurts it more than the income offsets. The PMCC is the more complex, more leveraged position.
Do I still collect dividends with a PMCC?
No. You hold a call option, not the shares, so you receive no dividend. Worse, an expected dividend can raise the odds that the call you sold is assigned early when it is in the money. For dividend-paying stocks where the payout is part of the thesis, the covered call on real shares is usually the better fit.
Can a beginner run a poor man’s covered call?
It is a step up in complexity from a plain covered call - you are managing a diagonal spread across two expirations, watching the LEAPS’ time value, and rolling the short call. If you are new, get comfortable with covered calls on shares first, then move to the PMCC once the mechanics feel routine.
Run the numbers
Compare the capital, breakeven and return side by side with the Covered Call Calculator and the Poor Man's Covered Call Calculator. Want to add downside protection instead? See what is a collar and the Collar Calculator, or browse all the options calculators.
Educational information only - not financial advice. Options carry risk; the LEAPS in a PMCC can lose value, dividends can trigger early assignment of a short call, and both strategies can lose money. Confirm the mechanics and size positions to your own risk tolerance.