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What is the Poor Man’s Covered Call (PMCC)?

This is a covered call writing-like strategy where LEAPS options are purchased instead of the actual stocks or ETFs and short calls are written against these long positions. LEAPS options expire approximately 9 – 24 months out. The technical term is a long call diagonal spread. It is generally considered a long-term strategy where weekly or monthly income is generated by selling OTM covered calls against the long option positions. I have seen this strategy defined as “covered call writing, but cheaper”. Please do not accept this interpretation as there are so many moving parts to the strategy that sets it apart from traditional covered call writing, both positive and negative.

Strike selection for our short calls

Typically, OTM weekly or monthly calls are used to both generate cash flow and to allow for share appreciation up to the OTM strike. BCI developed the PMCC Calculator which provides initial trades calculations and allows for trade management. When the considered trade is entered into the spreadsheet, a bold red “YES” or “NO” will appear, letting us know if this is an acceptable PMCC trade. Many of our members have noticed that OTM strikes generate “YES” more frequently than ITM strikes, which almost never calculate a “YES”.

What is the BCI trade initialization formula?

This is an algorithm inherent in the BCI PMCC calculator which answers the question: If we are forced to close the trade due to significant share appreciation, will we close at a profit? The formula is: [(Difference between the 2 strikes) + short call premium] > Cost of LEAPS

This formula is particularly useful to protect against auto-exercise when short call strikes are ITM near expiration.

Based on this formula, OTM strikes will provide a much greater credit on the left side of the equation than ITM strikes, because the difference between the strikes is much larger.

Real-life OTM example with NVIDIA (Nasdaq: NVDA)

• With NVDA trading at $135.41 on 10/11/2024, the 3/21/2025 $104.00 LEAPS cost $39.30
• The OTM 11/8/2024 $150.00 call generated a premium of $2.38
• If closed, the net credit would be $9.08 per-share, resulting in a bold red “YES” in the spreadsheet
• This initial PMCC trade resulted in an initial time-value return of 6.06% with an additional 37.12% of upside potential

Real-life ITM example with NVIDIA (Nasdaq: NVDA)

• With NVDA trading at $135.41 on 10/11/2024, the 3/21/2025 $104.00 LEAPS cost $39.30
• The ITM 11/8/2024 $104.00 call generated a premium of $16.90
• If closed, the net debit would be $5.40 per-share, resulting in a bold red “NO” in the spreadsheet
• This initial PMCC trade resulted in an initial time-value return of 6.06% (if share price moved below the $121.00 strike, resulting in no exercise) with no upside potential

Discussion

The PMCC strategy, generally, incorporates deep ITM long LEAPS options and slightly OTM short (covered) call options. Using this combination allows us to align with the BCI PMCC trade initialization formula which assures of a winning trade if share price accelerates substantially early in the trade.

Selling Cash-Secured Puts Video Course: Basic and Advanced Principles

Selling Cash-Secured Puts is a 6-part Video Series + downloadable workbook. All aspects of Put-Selling, including stock selection, option selection and position management. A huge section on exit strategies and a deeper dive into ultra-low risk approaches to selling cash-secured puts have been added to previous versions of this course. The Companion Workbook contains 111 all-color pages of all charts, graphs and slides. 

This course contains 6- parts in the video course:

Section I: Option basics (definitions and foundational information)
Section II: Traditional put-selling (stock & option selection + position management)
Section III: PCP (wheel) strategy (adding covered calls to selling cash-secured puts)
Section IV: Buy a stock at a discount instead of a limit order (buy a stock at our target price or get paid not to buy the stock)
Section V: Ultra-low-risk put/Delta strategy (High probability, low-risk trades)
Section VI: Ultra-low-risk put/implied volatility strategy (High probability, low-risk trades)

Click here for video & more information.

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Over the years, the BCI community has been incredibly gracious by sending our BCI team email testimonials sharing stories as to what our educational content has meant to their families. Moving forward, we have decided to publish several of these testimonials in our blog articles. We will never use a last name unless given permission:

Upcoming events

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Saturday April 5, 2025

Hilton DFW Lakes

Saturday April 5, 2025

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45-minute workshop

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Using Both Covered Call Writing & Selling Cash-Secured Puts in a Multi-Tiered Option-Selling Strategy

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