PMCC (Poor Man’s Covered Call) Income Trading Plan

1. Objective

Generate consistent monthly income using a synthetic covered call structure by:

  • Buying a long-dated in-the-money (ITM) call (LEAPS)
  • Selling shorter-term out-of-the-money (OTM) calls repeatedly

This offers leverage-like returns with reduced capital commitment, compared to traditional covered calls.

2. Account & Requirements

  • Margin account with Level 3 options approval
  • Comfortable managing option Greeks (delta, theta, etc.)
  • Experience with rolling and spread management

3. Ideal Ticker Selection

Choose underlying stocks or ETFs that are:

  • Liquid and optionable (tight bid/ask, high volume)
  • Moderately bullish or stable
  • Not highly volatile (avoid speculative stocks)
  • Price range: $40–$150 (manageable premium costs)

PMCC Structure

4. Trade Construction

Step 1: Buy a Long Call (Synthetic Stock)

  • Expiration: 6–12 months out (LEAPS)
  • Strike: Deep ITM (delta 0.75–0.85)
  • Target: Cost of long call ≈ 50–65% of the underlying price

Step 2: Sell a Short Call (Income Generator)

  • Expiration: 2–4 weeks out
  • Strike: Just OTM (delta 0.25–0.35)
  • Premium Target: 1%–2% of the long call’s cost per month

5. Setup Example (Hypothetical)

Stock: @ $190

Step 1: Buy Long Call

  • Buy Jan 2026 $150 Call for $48.00
    (Cost = $4,800 per contract)

Step 2: Sell Short Call

  • Sell 2-week $195 Call for $2.00
    (Receive $200 → ~4.2% return in 2 weeks on the LEAPS cost)

6. Key Rule: Avoid Overlapping Strikes

To preserve synthetic ownership:

  • Short call strike should be above long call strike
  • Preferred: At least 10% higher strike or not closer than 30 points apart on higher-priced stocks

This ensures the PMCC behaves similarly to a true covered call.

7. Trade Management

A. If Short Call Expires Worthless

  • Keep the premium → sell another call
  • Repeat weekly or bi-weekly for consistent income

B. If Short Call Is ITM (Risk of Assignment)

Options:

  1. Roll the short call up/out before expiration
  2. Let it be assigned, then sell LEAPS and reset the position (less ideal)

C. If Underlying Drops Significantly

  • You still own the long call → reduce risk of capital loss compared to stock
  • Continue selling calls at lower strikes (if LEAPS value remains high)
  • Or exit and re-enter with better pricing

8. Risk Management

  • Allocate max 5–15% of portfolio per PMCC position
  • Don’t sell short calls below your LEAPS strike
  • Always check LEAPS delta and time value left
  • Monitor implied volatility → avoid selling calls in low IV unless directionally confident

9. Performance Expectations

Capital RequiredMonthly Income TargetAnnualized Yield
~$4,800 (LEAPS)$150–$25036%–60%

(Depending on short call premiums and rolling discipline)

10. Rolling & Exit Strategy

  • Roll short call if it’s close to ITM with >5 days to expiry
  • Exit LEAPS if delta drops below 0.60 or time decay becomes too steep
  • Roll LEAPS every 6–8 months to maintain 6–12 months of time value

11. PMCC Tracking Template

Strategy Summary Table

Market ConditionOutcomeWhat You Do
Stock rises slowlyEarn income, no assignmentRepeat short calls
Stock surgesRoll short call up/outCapture more upside
Stock dropsLEAPS loses value slowlySell lower calls or exit
Time passesTheta decay → steady premiumReinvest or roll