# Poor Man's Covered Call (PMCC) Calculator Source: https://theoptionsbench.com/poor-mans-covered-call-calculator/ > Plain-text mirror for AI/LLM ingestion. Canonical HTML page: https://theoptionsbench.com/poor-mans-covered-call-calculator/ --- Poor man's covered call - key facts A poor man's covered call buys a deep in-the-money LEAPS call as a stock substitute and sells a shorter-dated call against it - covered-call income on a fraction of the capital. Net debit (max risk) Long LEAPS premium - short call premium, × 100 - the cost to open and the most you can lose. Max profit (Strike width - net debit) × 100 - if the stock finishes at or above the short strike. Breakeven Long strike + net debit per share (the effective cost basis). Return on debit Max profit ÷ net debit. Setup rule The long LEAPS should be in-the-money and longer-dated than the short call. Want the full explanation? Read What is a Poor Man's Covered Call? . How to set it up Outlook: Moderately bullish and range-aware: you want the stock to grind up toward the short strike, not rocket past it, and you sell each short call into richer, not cheaper, volatility. LEAPS delta (the long leg) Buy the long call deep in the money, delta 0.80+, so it tracks the stock nearly point-for-point and pays little time value. The wrong move is reaching for a cheaper 0.60-delta call - it behaves like a lottery ticket, not shares. Go deeper (0.85-0.90) on a choppier name where you need it to act more like stock. Long DTE 12-24 months on the LEAPS, because long-dated calls decay slowly and give you many short-call cycles before you must roll. Shorter than ~6 months and the long leg's own decay starts eating the credits. The LEAPS isn't permanent - plan to roll it out well before expiry. Short call (the income leg) Sell the short call 30-45 DTE, out of the money, struck above breakeven (long strike + net debit). That window is where theta accelerates, so you collect the credit fast and reset often. Sell it inside breakeven and the trade literally cannot profit - the calculator flags this. Pull it in tighter to dodge an earnings date, and pick the strike near the top of the range you expect. Enter when Open it when the short call is rich, not cheap - IV elevated (think IV Rank ~50+) on a name you'd be content to control. You're a net seller on the income leg, so dead-flat volatility means collecting scraps against a LEAPS that still decays. Skip when premium is thin, or when IV is fat only because earnings or a catalyst is pricing in a gap. Take profit Buy back the short call at ~50% of the credit, then sell the next cycle - the last bit of premium decays slowly and isn't worth the assignment/gap risk. The LEAPS you let run; this target is for the short leg only. In very low IV you can let a near-worthless short call ride closer to expiry. Manage / exit Roll the short call up and out when the stock rallies near or through it - a fast move past the short strike squeezes the diagonal because the short call's losses outrun the LEAPS' gains until you adjust. Watch ex-dividend dates, when early assignment spikes. Close the whole position if your read on the stock breaks; max loss is the net debit, but it's real money. Use it when: You want covered-call income on a stock you'd own but don't want to tie up the full price of 100 shares - the LEAPS controls the same exposure for a quarter of the capital with the loss floored at the net debit. Skip it when: You actually want the shares and their dividends, or you expect a sharp rally - the short call caps you, the LEAPS pays no dividend, and a real Covered Call is simpler and squeeze-proof. Starting points, not rules - the conventions experienced sellers reach for first. Your account, thesis and risk move every number here. See every strategy's setup -> ## How to use this calculator - Enter the stock's current price and the number of contracts. - For the long LEAPS call, enter its strike, the premium you paid, and its days to expiration. - For the short call, enter its strike, the premium you collected, and its days to expiration. - Read the result: net debit (your max risk), max profit, breakeven, return on debit, and annualized income yield. **What it tells you:** whether a LEAPS-plus-short-call diagonal gives you covered-call income at a worthwhile return on the capital you put up - and flags setups that can't profit. ## How this calculator works A Poor Man's Covered Call has two legs: a long, deep-in-the-money **LEAPS call** that stands in for 100 shares, and a shorter-dated out-of-the-money **call you sell** against it for income. Because the LEAPS costs a fraction of 100 shares, the whole position ties up far less capital than a real covered call - hence "poor man's". Enter both legs and the calculator returns the numbers that define the trade. The **net debit** - the LEAPS premium minus the credit from the short call, times 100 per contract - is what you pay to open, and also your maximum risk. **Max profit** is the spread width (short strike minus long strike) minus that net debit per share, reached when the stock sits at the short strike at the short call's expiration. The **breakeven** - the long strike plus the net debit per share - is also your effective cost basis: the price the stock must reach for the position to be worth what you paid. It also shows the **return on debit**, the **income yield** (this cycle's short-call credit annualized against your capital - the recurring-income engine of the strategy), and the **time value** baked into the LEAPS, which is the decay you are financing. The payoff diagram uses the conservative model that values the LEAPS at intrinsic at the short expiration, so it reads like a bull call spread; the real curve usually sits a little higher because the LEAPS still has time value left. ## PMCC vs a real covered call The appeal is capital efficiency. A covered call on a $100 stock ties up $10,000 per contract and carries the stock all the way down to zero. The PMCC might control the same shares for a $2,000-3,000 LEAPS, and its loss is capped at that net debit. That smaller, defined risk is the headline benefit. The costs: the LEAPS pays no dividends, it bleeds time value as it ages (you are renting exposure, not owning it), and a sharp rally far above the short strike can squeeze the diagonal because the short call's losses outrun the LEAPS's gains until you adjust. A PMCC suits a moderately bullish, range-aware view on a stock you do not need to own outright - not a buy-and-hold dividend position. ## Worked example A fixed, hypothetical illustration - not live market data. A hypothetical stock trades at $100. You buy the $80 LEAPS call (about a year out) for $24 - $20 of that is intrinsic, $4 is time value. You sell the $110 call, 30 days out, for $1.50. - Net debit / max risk: ($24 - $1.50) × 100 = $2,250 per contract. - Spread width: $110 - $80 = $30. - Max profit (estimate): ($30 - $22.50) × 100 = $750. - Breakeven / cost basis: $80 + $22.50 = $102.50. - Return on debit: $750 ÷ $2,250 ≈ 33%. - Income yield: the $150 short-call credit on $2,250 of capital, annualized over 30 days, is about 81% - the rate at which repeated short calls pay back the debit (if you could repeat it). Found this useful? Get the bi-weekly email Strategy breakdowns, the edge cases these calculators surface, and trades worth watching - free, no noise. Join the free email -> ## ⚠ Common mistakes - Buying a LEAPS that isn't deep enough in the money. A low-delta long call does not track the stock, so it fails as a share substitute and bleeds time value fast. - Selling a short strike inside your breakeven. If the short strike is below the long strike plus net debit, the position can't profit. The calculator flags this. - Ignoring the rally risk. A fast move well above the short strike hurts a PMCC until you roll the short call up; the long call's gains lag the short call's losses in the short run. - Forgetting the LEAPS expires too. You must close or roll the long call before its own expiration; it is not a permanent stock holding. - Overpaying in time value. The "LEAPS time value paid" figure is decay you finance - keep it modest relative to the credits you expect to collect. ## Frequently asked questions What is a Poor Man's Covered Call? A Poor Man's Covered Call (PMCC) is a diagonal call spread that imitates a covered call for a fraction of the capital. Instead of buying 100 shares, you buy one long-dated, deep-in-the-money LEAPS call as a stock substitute, then sell a shorter-dated out-of-the-money call against it to collect premium. It is a defined-risk, mildly bullish income strategy. How is the max profit calculated, and why is it an estimate? Max profit ≈ (short strike - long strike - net debit per share) × 100 per contract. It is reached when the stock sits at the short strike at the short call's expiration. It is an estimate because at that point the long LEAPS still holds some time value the simple formula ignores - so the realised best case is usually a little higher than the figure shown. This calculator uses the conservative version. What is the breakeven, and is it the same as the effective cost basis? Yes - for a PMCC they are the same number: long strike + net debit per share. That is the price the stock must reach for the position to be worth what you paid, and equivalently your all-in cost per share to control the stock through the LEAPS. Below it the position is underwater; above it (up to the short strike) it gains. PMCC vs a real covered call - what's the trade-off? A covered call ties up the full price of 100 shares and carries the stock's entire downside. A PMCC replaces the shares with a LEAPS call, so it costs far less capital and caps the downside at the net debit - but it pays no dividends, loses time value on the long call, and can be squeezed if the stock gaps far above the short strike. Why does the LEAPS need to be deep in the money? A deep-in-the-money LEAPS has a high delta (often 0.80+), so it tracks the stock closely - that is what makes it a sensible stock substitute. It also carries less time value relative to its price, so you finance less decay. A near- or out-of-the-money LEAPS behaves more like a cheap lottery ticket than like owning shares. What happens if the short call finishes in the money? If the stock is above the short strike at expiration, the short call is assigned and you are short 100 shares - but your long LEAPS covers that obligation, so you simply realise close to the max profit. In practice most traders buy back or roll the short call before expiration to keep the LEAPS and sell another call. Watch ex-dividend dates, when early assignment is more likely. What is the most I can lose on a PMCC? The net debit you paid to open the position. The worst case is the stock falling below the long strike at the LEAPS expiration, leaving both calls worthless. That is why the strategy is defined-risk - unlike owning the shares, the loss is floored at what you put in. When should I use a poor man's covered call? When you want covered-call income but do not want to tie up the cash for 100 shares - you buy a deep in-the-money LEAPS call and sell shorter-dated calls against it. It suits a neutral-to-bullish view on a stock you would own. Skip it if you expect a sharp rally, since the short call caps you and you forgo dividends, and avoid illiquid names where a wide bid-ask on the long leg eats the edge.