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Poor Man's Covered Call

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Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.

The poor man’s covered call is a great alternative to covered call because it uses less buying power. In a tastybites account, it is essential to efficiently use buying power.

A poor man's covered call utilizes a further out in time deep in the money call option as a replacement for long stock, while the short call remains the same as in a regular covered call.

Here are key components of a poor man's covered call:

  • Buy call option in a longer-term expiration cycle
  • Sell call option in a near-term expiration cycle
  • Max profit is slightly less than: Short Strike - Stock Price + Credit from short call

The buying power reduction of a poor man’s covered call is 84% less than a standard covered call, but the tradeoff is less theta decay and roughly 12% lower max profit.

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