The Poor Man's Covered Call (The ULTIMATE Guide)

Learn the Poor Man's Covered Call (PMCC) options strategy with in-depth examples and trade data visualizations.

The PMCC is becoming a super popular options strategy and alternative to the covered call. The PMCC requires significantly less capital to trade than a traditional covered call and comes with much lower risk as a result.

In this video, you'll learn all about the poor man's covered call (PMCC) options strategy with theoretical explanations and visualizations, as well as historical PMCC trades created from real data.

0:00 Introduction
0:33 How the Poor Man’s Covered Call (PMCC) Works
1:37 Real PMCC Setup in AAPL
5:41 PMCC Trade Examples w/ Profit Visualizations
6:09 PMCC Example #1: SPY
8:15 Example #1 P/L Visualization
9:49 PMCC Trade Example #2: FB
11:34 Example #2 P/L Visualization
12:17 “Max” Profit & Loss Explained
13:09 “Simple” Max Profit of a PMCC
14:15 Why Calculating Max Profit is Difficult
15:35 PMCC vs. Implied Volatility Changes
17:30 Trade Simulation: PMCC vs. 25% IV Increase
19:18 Don’t Miss This Video!
20:22 PMCC vs. Time Decay
21:49 Trade Simulation: PMCC vs. Passage of Time
23:18 How to Choose Strike Prices and Expirations?
23:46 Long Call Selection Guideline
26:53 Short Call Selection Guideline
29:54 Option Selection Recap
31:15 Early Assignment Risk?
33:26 Tax Implications of PMCCs vs. Covered Calls
35:23 Watch This Video to Level Up Your Options Trading IQ

Leave me a comment if you have any questions or feedback!

=== Recommended Resources ===

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[projectfinance]

This was a big project! I hope you enjoyed it. Do you like the new visuals and presentation style?

Important Note: the theoretical simulations displayed in this video were specific to the examples in each simulation. The concepts are general and may not apply 100% to every PMCC setup and situation. Having two options in differing expiration cycles adds more complexity to how option positions perform vs. changes in IV and time.


-Chris

[raphgodin]

You are the men for options on YouTube, keep going i love you !!

[opadrian]

You are by far the best content creator about investing and options, perfect quality, easy explanation…

[kardondo]

I love how much effort time and detail you put in each one of your videos, thank you for everything. On the other hand, could you do examples with less pricey option premiums, not talking less than .30 in Delta, but still affordable and can be well risk managed, the first spread was north of $3200 a piece, I can only imagine what that premium would be if u did a video about Rich Man's covered call.

[leonth]

Thanks Chris. I've learned a lot from your videos. Just one thing that the PMCC seems to have lower reward/risk ratio. In your AAPL 100/160 call, the reward/risk ratio is about 41% because the short leg is cheaper. So, would you please comment on scenarios that PMCC would still be preferrable even with lower reward/risk ratio. For example, comparing with same DTE on both legs which may have higher reward/risk ratio ? May be PMCC is better for those stocks that have long term growth but volatile in short term ?

[cyfrowymuza]

hmm, nice examples and explanation, but I always wonder if trading options shouldn't we take into account the fact that with options you can loose everything because they expire and with pure stock you can keep it and wait for the correction/bear market (like now) to end and ultimately profit (might take some time but most likely) ?

[busstaandwaala]

Just made my first million due to you brother😢


You are highly underrated

[guttybruin]

Chris, late to the party with this question but can you still close the position early with a profit if your short call is deep in the money? Assuming you’ve set up the position properly.

[DaBooster]

What if you have a OTM leap? Can you still sell covered call?

[Alfy]

Excellent and didactic explanation of how to set this type of Covered Call. You are a wonderful teacher and you are really helping us, the beginners. Big Thanks !

[jjjjns]

Is there a way to substitute a Put option instead of writing a call? I know you would give up the premium. Would it be a viable strategy?

[opadrian]

Does anyone know a platform where I can back test options to see their past performance? For free if possible

[trafficlawparalegalservice]

Great tutorial. I need a clarification please. Buying DIM call with delta 0.81 is it not too low of a delta? Is it not exposing you to a minimized upside if the stock trades higher, since the price per share would only move up 81% (on a dollar to dollar comparison)? While it requires less capital, wouldn't it be better to buy DIM call with delta lets say 0.94 (95 strike) to benefit from the upsite?

[maivergill]

high quality video. examples, clear explanation, nice charts.... thank you

[johnmacgregor]

Curious, if you are going out so long, why do a deep ITM call? Seems like you'll be paying a lot more than you need to? Great video and thank you!

[gardeningrelaxation]

It is not 100%correct that buying 100 shares of stock is risker than buying the option. As long as you don't sell stock at a lost, it is not a lost. But purchased Option might lose value if the SPY price falls. Is that correct?

[tommycheung]

Thanks for the video! I do have a question, would it make sense to buy a leap option? Buy a leap option with an expiry more than 365 Days+, and short near expiry options. Wouldn't that reduce the initial cost while earning the premiums until the long call expires?

[figh]

hi Chris, when can I see daily call/put open interest chart of sp500

[JimmyGr]

Amazing! Thanks for the knowledge and the thorough easy-to-grasp information and examples.

[willgriner]

WHAT are the DELTAs of these positions?? WHY did you choose the DTEs that you did?
Showing specific examples are nice, but we need to be able to be consistent and duplicate the steps for predictable outcomes.