Poor Man's Covered Call (PMCC)¶

Quick Summary¶

The Core Idea: Buy stocks you think will go up, but use the leverage of options to make more money. Then sell calls against the calls you own for extra "juice."

Part 1: The Foundation – Using LEAPS as Stock Replacement¶

The first part of the strategy is about getting long-term bullish exposure to a stock without paying the full price for 100 shares.

What Are LEAPS?¶

• LEAPS (Long-term Equity AnticiPation Securities): Options with more than a year until expiration
• Their long lifespan means they decay very slowly (low theta decay) and behave more like the underlying stock
• Deep In-the-Money (ITM) & High Delta: An 80-delta call means for every $1 the stock goes up, the option goes up approximately $0.80
• This high delta makes the option a good substitute for owning the stock – you get about 80% of the stock's movement

The Leverage Effect¶

Instead of buying 100 shares of NVIDIA (NVDA) for $164.92 × 100 = $16,492, you buy a single, long-term, deep in-the-money call option.

You control a stock-like asset for about one-third of the capital.

Calculating Leverage:

• Divide stock price into LEAP price: 164.92 / 53.00 = 3.1x leverage
• Multiply by Delta: 3.1 × 0.80 = 2.5x effective leverage

Part 2: The "Juice" – Selling Short-Term Calls¶

This is the "Poor Man's Covered Call" part of the strategy. You act like someone who owns 100 shares and sells a covered call, but you're using your LEAPS call as the collateral instead of actual shares.

The Transaction¶

1. You Own: The Sep 2026 $130 Call (your "stock")
2. You Sell to Open: The 15 Aug $180 Call (a short-term, out-of-the-money call)

Why Do This?¶

You are selling the right, but not the obligation, for someone else to buy NVDA from you at $180 per share before August 15^th. For selling this right, you receive immediate cash called a premium.

How the Theta Engine Works¶

You're essentially creating an income engine where you collect premium from a fast-decaying asset (the short call) while holding a slow-decaying asset (the long LEAPS).

NVDA Example – Full Walkthrough¶

Step 1: Buy the LEAP¶

• Underlying: NVDA at $164.92
• Buy: Sep 2026 \(130 Call, ~80 delta @ **\)53.00** (cost $5,300)

Step 2: Calculate Potential Gains (Leverage Demo)¶

If NVDA goes up $22.95 (15%) in a month:

That's the leverage long Calls give you.

Step 3: Sell the Short Call (The Income)¶

• Sell: 15 Aug \(180 Call (~23 delta, 32 DTE) @ **\)2.23** (collect $223)

Step 4: Calculate ROI¶

This is a 4.2% return on your capital in about one month, purely from selling the short call.

Projected Annualized Return (Illustrative):

Management Rules¶

• Buy back when the short call has lost ~50% of its value, OR
• Roll to the next month

Scenarios & Risk Management¶

Best Case Scenario¶

NVDA's price rises slowly and stays below $180 by August 15^th:

• The short call expires worthless – you keep the full $223
• Your long LEAPS call has increased in value because the stock went up
• You can then sell another short call for September, repeating the process

Risk 1: The Stock Plummets¶

If NVDA drops significantly, the loss on your long LEAPS call will likely be much larger than the $223 premium you collected. The premium helps cushion the blow, but this is still a bullish strategy and you lose money if you are wrong about the stock's direction.

Risk 2: The Stock Soars Past Your Short Strike¶

If NVDA shoots past $180, the short call you sold is now in-the-money and becomes a liability.

• This is not a disaster! Your long LEAPS call (with its lower $130 strike) will have gained much more in value than the short call lost. The overall position is very profitable.
• Management is Key: You cannot let the short call be exercised, because you don't have 100 shares to deliver. Before expiration, you must "roll" the position: Buy to close your current short call (likely for a loss) and simultaneously sell a new short call at a higher strike price and/or a later date. Often, you can do this for a net credit, continuing the strategy while locking in some of the gains.

Scenario Summary Table¶

More Affordable Examples¶

The PMCC is not limited to expensive stocks. The strategy's effectiveness is based on the relationship between the LEAPS and the short-term call, which can be applied to assets at any price point.

Example: IAU (iShares Gold Trust)¶

A commodity ETF with different volatility characteristics than tech stocks. Great vehicle for PMCC even if gold stays flat.

ROI Calculation:

Projected APY:

This demonstrates how you can generate a significant return even if the underlying asset (gold) remains flat, as the income comes from the decay of the short-term option.

Example: SOFI (SoFi Technologies)¶

A more volatile growth stock, which often results in richer option premiums.

ROI Calculation:

Projected APY:

The higher implied volatility contributes to a larger premium relative to the LEAPS cost.

Example: SILJ (Amplify Silver Miners ETF)¶

A commodity-related play on volatile silver mining companies – most affordable entry.

ROI Calculation:

Projected APY:

Even with a small nominal premium, the very low cost of the LEAPS makes the return substantial.

Key Takeaways¶

1. Capital efficiency: Control stock-like exposure with ~⅓ the capital
2. Income generation: Sell fast-decaying options against slow-decaying ones
3. Scalable: Works on expensive stocks (NVDA) and cheap ETFs (SILJ) alike
4. Management required: Roll short calls before assignment risk
5. Still bullish: You need the underlying to go up (or stay flat) to win

Finding Opportunities¶

• Use Barchart to screen for stocks and ETFs
• Look for underlyings you are bullish on
• Ensure sufficient liquidity (tight bid-ask spreads)
• Higher IV names offer richer premiums

ROI Formulas Reference¶

Cycle ROI:

Illustrative APY:

References¶

• Book: Intrinsic: Using LEAPS to Retire Early by Mike Yuen
• Tool: OptionStrat – visualize and analyze the strategy
• Screening: Barchart – find suitable underlyings