At the October 5, 2026 close, 100 shares of Nvidia cost $23,890, 100 shares of Meta $74,190 and 100 shares of Microsoft $52,518. That is what it takes to sell a single covered call on each. The poor man’s covered call replaces the shares with a deep in-the-money call that expires in 2028, and sells the same short call against it. On Nvidia that cut the cash needed to about $6,800. The leverage cuts both ways, and this guide shows exactly how. If covered calls are new to you, start with the covered call strategy for income.
What is a poor man’s covered call?
A poor man’s covered call (PMCC) is a long call diagonal spread used as a cheaper covered call. You buy one deep in-the-money call with a long expiry and sell one shorter-dated, out-of-the-money call against it, then keep selling a new short call each month while the long call lasts.
| Leg | Typical choice | Job it does |
|---|---|---|
| Long call (the “stock”) | 0.75–0.85 delta, 12–24 months to expiry | Moves like 75–85 shares; little time value to lose |
| Short call (the income) | 0.20–0.30 delta, 30–45 days to expiry | Collects premium; caps upside until expiry |
Because the long call has a lower strike and a later expiry than the short call, your broker treats the short call as covered by a spread, not naked. That is the whole trick: the long call does the job of 100 shares for the purpose of covering the short call. It is the same structure covered in our guide to calendar and diagonal spreads, used with a specific income goal.
How much capital does a poor man’s covered call save?
Typically 65–75% of the capital a covered call needs. The exact saving depends on the LEAPS you pick: deeper in the money costs more but behaves more like stock.
Here is the Nvidia example step by step, with the stock at $238.90 and an assumed 40% implied volatility:
- Buy one January 21, 2028 190 call (about 0.80 delta, 472 days out) for about $73.75, or $7,375 per contract.
- Sell one November 20, 2026 262.5 call (about 0.29 delta, 46 days out) for about $5.71, or $571.
- Net debit: $73.75 − $5.71 = $68.04, or $6,804. The covered-call version costs $238.90 − $5.71 = $233.19, or $23,319.
Of the $73.75 LEAPS price, $48.90 is intrinsic value (the stock is $48.90 above the 190 strike) and only $24.85 is time value. That time value is the “rent” you pay for not owning the shares, and it decays over the life of the LEAPS. The aim is to collect more in short-call premium than the LEAPS loses in time value.
LEAPS strike + net debit must be below the short strike. Here 190 + 68.04 = 258.04, below 262.5. If it isn’t, a sharp rally through the short strike can leave the spread worth less than you paid for it.
How do the returns compare with a covered call?
Per dollar committed, the poor man’s covered call earns more when the stock rises toward the short strike and loses much more when it falls. In dollar terms the PMCC loses less in a crash, because you put less in. As a share of capital, it loses far more.
| Nvidia on Nov 20, 2026 | Covered call | Poor man’s covered call |
|---|---|---|
| $262.50 (at the short strike) | +$2,931 (+13%) | +$2,324 (+34%) |
| $238.90 (unchanged) | +$571 (+2%) | +$360 (+5%) |
| $191.12 (down 20%) | −$4,207 (−18%) | −$3,106 (−46%) |
Two things stand out. First, a flat stock is a modest win: the $571 of short-call premium beats the roughly $211 of time value the LEAPS loses over the same 46 days, for about +5% on capital. That gap is the engine of the trade, and it only holds if implied volatility stays put and you keep collecting more than the LEAPS decays. Second, a 20% drop is common for single mega-cap stocks. Nvidia fell by more than a third between its January 2025 high and its April 2025 low. In that kind of drawdown the LEAPS loses half its value, and the short-call premium barely dents it.
How do you choose the strikes and expiries?
Choose the LEAPS by delta and time value, and the short call by delta and the calendar. Strike prices follow from those two choices, which is why the same rules work on a $240 stock and a $740 one.
- LEAPS delta 0.75–0.85. Lower deltas are cheaper but carry more time value and behave less like stock. Above 0.90 you are close to buying the shares.
- LEAPS expiry 12–24 months. Theta on a long-dated option is small and fairly flat; the steep part of the decay curve only starts in the last few months. Plan to roll the LEAPS when it has about 6 months left. Our LEAPS guide covers this in depth.
- Short call 0.20–0.30 delta, 30–45 days. That is where theta per day is meaningful without the gamma risk of weekly options.
- Skip earnings. Sell the short call so it expires before the earnings date, or accept that implied volatility and the gap risk are both higher.
Mega-cap tech now lists far more expiries than it used to. Since January 2026, exchanges have added Monday and Wednesday expiries on the largest names, alongside the Friday weeklies (Bloomberg). That makes it easier to place the short call exactly before an earnings date or a Fed meeting rather than straddling it.
What do the Greeks of a poor man’s covered call look like?
A PMCC is long delta, short gamma near the short strike, positive theta while the short call is working, and long vega overall. The last one is the biggest difference from a covered call.
| Greek | Long 190 LEAPS | Short 262.5 call | Net |
|---|---|---|---|
| Delta | +0.80 | −0.29 | +0.51 (about 51 shares) |
| Theta per day | about −$0.05 | about +$0.13 | about +$0.08 per share |
| Vega | large, long | small, short | long volatility |
Because the LEAPS has a lot of vega, a fall in implied volatility hurts even if the stock doesn’t move. Buying the LEAPS after a volatility spike is the most common avoidable mistake: you pay up for the long leg, then watch it deflate as markets calm. Check IV rank before you buy the long leg and prefer entering when it is low.
How do you manage the short call when the stock rallies?
When the stock runs through the short strike, roll the short call up and out for a net credit, or close the whole spread. Don’t exercise the LEAPS to cover an assignment unless it has almost no time value left.
- Delta of the short call passes about 0.70: decide. Rolling up to a higher strike and out a month usually costs little or brings in a small credit.
- Roll only for a credit, or close. Paying to roll repeatedly turns an income trade into a losing one. Our guide to rolling options to avoid assignment shows the math.
- If you are assigned, you are short 100 shares. Sell the LEAPS and buy the shares back in the market rather than exercising, which forfeits the LEAPS’s time value.
Dividend stocks add an extra risk. If a short call is in the money and its time value falls below an upcoming dividend, it can be assigned early, the day before the ex-dividend date, and you will owe the dividend on the short shares. See early assignment risk.
Who should use a poor man’s covered call, and who shouldn’t?
It suits investors who want covered-call income on an expensive stock they don’t yet own, and who are comfortable with leverage. It is a poor substitute for a concentrated position you already hold.
- Good fit: a smaller account that wants exposure to several mega-cap names without tying up $50,000+ in each; a trader adding upside exposure to a stock they like but want to pay for partly with premium.
- Poor fit: an executive or tech employee who already owns a large, low-basis stake. Selling the shares to fund LEAPS triggers capital gains tax and increases leverage. For that situation, a covered call on the shares you own or a collar fits better.
- Income-only investors: a PMCC pays no dividends and can lose most of its value in a bear market. If income stability matters more than return on capital, stick with shares.
What should you check before opening a poor man’s covered call?
- Pick the stock you would be happy to own outright; the PMCC is a leveraged long position first.
- Buy a 0.75–0.85 delta LEAPS with 12+ months to expiry, ideally when IV rank is low.
- Sell a 0.20–0.30 delta call 30–45 days out that expires before earnings.
- Confirm LEAPS strike + net debit is below the short strike.
- Size it so that losing half the net debit in a 20% drawdown is acceptable.
- Plan the exits: roll the short call at about 0.70 delta, roll the LEAPS at about six months left.
Frequently asked questions
What is a poor man's covered call?
A poor man's covered call is a long call diagonal spread. You buy a deep in-the-money call with a long expiry, usually a LEAPS a year or more out, and sell shorter-dated out-of-the-money calls against it each month. The long call stands in for 100 shares, so the position behaves like a covered call for a fraction of the capital.
What delta should the LEAPS be for a poor man's covered call?
Most traders buy a LEAPS between 0.75 and 0.85 delta with at least 9 to 12 months, and often more than a year, to expiry. A high delta keeps the long call moving almost like the stock and keeps its time value low, so less of the premium you pay is exposed to decay.
Is a poor man's covered call better than a covered call?
It is more capital efficient, not better. On Nvidia at the October 5, 2026 close, an illustrative poor man's covered call needed about 6,800 dollars against about 23,300 dollars for a covered call. It earns a higher return on capital if the stock rises to the strike, but loses a much larger share of capital if the stock falls, and it pays no dividends.
What is the maximum loss on a poor man's covered call?
The maximum loss is the net debit paid: the LEAPS price minus the premium received for the short call. That loss happens if the stock falls far enough for the LEAPS to lose most of its value. Unlike a covered call, the maximum loss is small in dollars but large as a percentage of the capital committed.
What happens if the short call goes in the money on a poor man's covered call?
You can roll the short call up and out to a higher strike and later date, usually for a net credit, or close the whole spread. If the short call is assigned you are short 100 shares, which you can cover by exercising the LEAPS, though that throws away its remaining time value, so selling the LEAPS and buying shares back is usually better.
Can you do a poor man's covered call in an IRA?
Many brokers allow it in an IRA with spread approval, because the long call covers the short call. Approval levels vary by broker. The position cannot use margin, so you pay the full net debit, and assignment on the short call must be handled with the long call or by closing the spread.
Key takeaways
- A poor man’s covered call is a call diagonal: a deep in-the-money LEAPS as the “stock”, with 30–45 day calls sold against it.
- Buy the LEAPS at about 0.75–0.85 delta and a year or more out; sell the short call at about 0.20–0.30 delta.
- Check the setup rule: the LEAPS strike plus the net debit should sit below the short strike, or a sharp rally locks in a loss.
- On Nvidia it cut the capital from about $23,300 to $6,800, but turned a 20% drop from an 18% loss into a 46% loss on capital.
- Manage the short call by rolling up and out for a credit; avoid exercising the LEAPS, which throws away its time value.
- Use it to add exposure efficiently, not to replace concentrated stock you already own; it pays no dividends and has no tax lot to manage.
Sources and method
- OCC, Characteristics and Risks of Standardized Options — LEAPS, spreads, exercise and assignment
- FINRA Rule 2360, Options — account approval and spread requirements
- FINRA Rule 4210, Margin Requirements — how covered and spread positions are margined
- Cboe Options Institute — diagonal spreads and LEAPS education
- IRS Publication 550, Investment Income and Expenses — tax treatment of options that expire, close or are exercised
Prices are Black–Scholes estimates for Nvidia at its October 5, 2026 close of $238.90 (TradingView), an assumed 40% implied volatility for both legs and a 4% rate, ignoring Nvidia’s very small dividend. The LEAPS is the January 21, 2028 190 call; the short call is the November 20, 2026 262.5 call. Real quotes differ with skew, the bid-ask spread and changes in implied volatility, so treat the figures as illustrative.