Bullish options strategy
Poor man's covered call
Buy a deep in-the-money long-dated call instead of the shares, then sell short-term calls against it.
BullishAny IVDefined riskLevel 5 · Advanced structures
Poor man's covered call payoff
An example on a $100 stock with 30% implied volatility. The dashed line is the profit or loss at expiry; the solid line is what the position is worth today.
The trade
Buy 1 $85 call · 365 days · $22.35
Sell 1 $105 call · 30 days · $1.66
Net debit $2,069
Max profit$522
Max loss−$2,069
Break-even$98.60
Chance of profit56%
How it works
- The LEAPS call stands in for 100 shares at a fraction of the cost.
- Short calls are sold repeatedly for income, like a covered call.
When to use it
- You like a stock long term but don't want to tie up the cash for 100 shares.
Managing the trade
- Buy the long call at 0.75-0.85 delta, sell the short call around 0.30 delta, 30-45 days out.
- Make sure the short strike + premium stays above what you paid for the long call.
Risks
- A sharp drop hurts the expensive long call.
- A sharp rally can make the short call worth more than the spread is worth.