Love Covered Calls? Have You Tried a Poor Man’s Covered Call?

Love Covered Calls? Have You Tried a Poor Man’s Covered Call?


One of my favorite options strategies is the covered call. Simple, straight-forward and easy to manage. Covered calls allow you to lower the cost basis on stocks you already own or, alternatively, give you the opportunity to generate a steady stream of income. But today, I don’t want to discuss covered calls. I want to discuss what is, in my opinion, a much better alternative to a basic covered call strategy…a poor man’s covered call.

It doesn’t require buying 100 shares of stock. It allows you to use far less capital, while still receiving the same benefits of a covered call strategy. And it’s an alternative that gives you a far greater return on your capital.

Realistic Strategies, Realistic Returns

Join Cabot Options Institute Masters Club and make money in all markets — up, down or sideways.

Andy Crowder quit a lucrative job on Wall Street so that he could share his expertise with regular investors – instead of super-rich investment banks and hedge funds.

Today, he publishes four different specialized options services for Cabot Wealth Network.

When you join Cabot Options Institute Masters Club, you get all four, at half the price of each separately!

These services each offer a safe way to generate reliable returns – based on statistical likelihoods that give you an 80% chance of success.

Make Money in This Market

Again, the strategy is known as a “poor man’s covered call” or, in options mumbo jumbo, a long call diagonal debit spread. The name poor man’s covered call comes from the lower capital requirement needed to establish a position compared to a standard covered call.

In fact, in most cases, it costs 65% to 85% less to use a poor man’s covered call strategy. The savings in capital required should be reason enough to at least consider using the strategy. And I’m certain after reading this you will indeed find the strategy appealing enough to consider.

A poor man’s covered call is an inherently bullish strategy that is the same in every way to that of a covered call strategy, with one exception. Rather than spend an inordinate amount of money to purchase at least 100 shares of stock, you have the ability to buy what is essentially a stock replacement. The replacement? An in-the-money LEAPS call contract.

LEAPS, or long-term equity anticipation securities, are options with at least one year left until they are due to expire. The reason we choose to use LEAPS as our stock replacement is because LEAPS don’t suffer from accelerated time decay like shorter-dated options.

My Approach to Poor Man’s Covered Calls

 There are numerous ways to approach poor man’s covered calls. My preference is to use LEAPS that have at least two years left until expiration.

For example, let’s take a look at tech behemoth, Apple (AAPL). It’s an expensive stock, yet one of most consistent performers the market offers. But the cost can be a huge deterrent for many investors, not with a poor man’s covered call.

As you can see in the chart below the stock is currently trading for 146.79.


Now, if we followed the route of the traditional covered call we would need to buy at least 100 shares of the stock. At the current share price, 100 shares would cost $14,679. Certainly not a crazy amount of money. But just think if you wanted to use a covered call strategy on, say, a higher-priced stock like Apple (AAPL), Microsoft (MSFT) or even an index ETF like SPDR S&P 500 ETF (SPY). For some investors, the cost of 100 shares can be prohibitive, especially if diversification amongst a basket of stocks is a priority. Therefore, a covered call strategy just isn’t in the cards…and that’s unfortunate.

But with a poor man’s covered call strategy you can typically save 55% to 85% of the cost of a covered call strategy.

So again, rather than purchase 100 shares or more of stock, we only have to buy one LEAPS call contract for every 100 shares we wish to control.

As I said before, my preference is to buy a LEAPS contract with an expiration date around two years. Some options professionals prefer to only go out 12-16 months, but I prefer the flexibility the two-year LEAPS offers.

The image below shows every expiration cycle available for AAPL. Again, I want to go out roughly two years in time. The September 15, 2023 expiration cycle with 787 days left until expiration is the longest dated expiration cycle, but I don’t want to go out that far in time. The June 16, 2023 with 696 days until expiration works for me.

So, when my LEAPS reach 10-12 months left until expiration I then begin the process of selling my LEAPS and reestablishing a position with approximately two years left until expiration.


Once I have chosen my expiration cycle, I then look for an in-the-money call strike with a delta of around 0.80.

When looking at AAPL’s option chain I quickly notice that the 110 call strike has a delta of 0.79.  The 110 strike price is currently trading for approximately $45.60. Remember, always use a limit order. Never buy an option at the ask price, which in this case is $45.70.

So, rather than spend $14,679 for 100 shares of AAPL, we only need to spend $4,560. As a result, we are saving $10,119, or 68.9%. Now we have the ability to use the capital saved to diversify our premium amongst other securities, if we so choose.


After we purchase our LEAPS call option at the 110 strike, we then begin the process of selling calls against our LEAPS.

My preference is to look for an expiration cycle with around 30-60 days left until expiration and then aim for selling a strike with a delta ranging from 0.20 to 0.40, or a probability of success between  60% to 85%.

As you can see in the options chain below, the 155 call strike with a delta of 0.27 falls within my preferred range.


We can sell the 155 call option for roughly $1.95.

Our total outlay for the entire position now stands at $43.65 ($45.60-$1.95). The premium collected is 4.3% over 31 days.

If we were to use a traditional covered call our potential return on capital would be less than half, or 1.3%.

And remember, the 4.3% is just the premium return, it does not include any increases in the LEAPS contract if the stock pushes higher. Moreover, we can continue to sell calls against our LEAPS position for another 8 – 12 months, thereby generating additional income or lowering our cost basis even further.

An alternative way to approach a poor man’s covered call, if you are a bit more bullish on the stock, is to buy two LEAPS for every call sold. This way you can benefit from the additional upside past your chosen short strike, yet still participate in the benefits of selling premium.

Regardless of your approach, you can continue to sell calls against your LEAPS as long as you wish. Whether you hold a position for one expiration cycle or 12, poor man’s covered calls give you all the benefits of a covered call for significantly less capital.

Take the time to learn the strategy and, as always, if you have any questions please feel free to email.


  • Andy,

    By purchasing a LEAPS option with a delta of .80, you’re purchasing a deep ITM call. As a result, it’s unlikely that the underlying share price would ever fall below the strike price of your long call. However, in the event of a market crash would you ever close your long call if the underlying share price fell below the strike price. For example, if Apple traded below $110. Or would you just continue to sell premium even though the long call is trading OTM?

  • Andy C.


    Once we start selling calls against out LEAPS contract, the cost basis of our overall position is reduced. By selling calls every 30-45 days we have the opportunity to reduce our cost basis by a significant amount annually. So, that’s our first line fo defense in case the stock moves against us. Moreover, I tend to diversify my poor man’s covered call positions to manage my risk further. For instance, I might use the Dogs of the Dow, Small Dogs, Dividend Aristocrats, etc. as the foundation for my poor man’s covered call approach. As for setting a stop-loss, it is ultimately up to you to decide what works best. However, 5% to 10% is a little too tight for my liking. I like to allow my positions some breathing room, just in case volatility hits the market, again, knowing that inherently through sell calls, I am continuously lowering my cost basis. Also, remember, when a stock moves lower, typically implied volatility increases (IV) which allows us to sell calls for higher prices which reduces our cost basis even further during times of duress. I hope this helps and thanks again for the question. Keep them coming!

  • Lewis E.

    Regarding a poor man’s covered call (PMCC) and using a LEAP as part of the strategy, the expected increase in the stock price may not happen or stock price may drop. What is your guideline for closing out the trade when the stock price drops? Is it based on a percentage decline in the stock price such as 5% – 10% or do you use some other metric?
    I found your website this afternoon. I listened to your webinars about 2-3 years ago when you were with Wyatt Research.

You must log in to post a comment.

Enter Your Log In Credentials

This setting should only be used on your home or work computer.

Need Assistance?

call Cabot Wealth Network Customer Service at

1 (800) 326-8826