Poor Man’s Covered Call Calculator

What is a Poor Man's Covered Call?

A Poor Man's Covered Call (PMCC) works like a covered call, but instead of buying 100 shares you buy a long-dated, in-the-money call option, often a LEAPS with a year or more to expiry. You then sell short-dated, out-of-the-money calls against it, month after month, to collect income.

The long call moves much like the shares but costs far less, so your money goes further. The short call earns premium, just like a covered call. Because the two calls have different expiry dates, this calculator shows your results up to the short call's expiry, with the long call still holding some time value at that point.

How to use this calculator

1. Enter the stock's current price. Adding the ticker symbol is optional.
2. Enter the long call you're buying: its strike price, premium per share and days to expiry.
3. Enter the short call you're selling: its strike price and premium per share.
4. Set the short call's expiry date, or type the number of days to it.
5. Enter how many positions you're trading and any fees per position.

The calculator updates as you type. You'll see:
- Your net cost, maximum profit and maximum loss at the short call's expiry, and your break-even price.
- Your profit if the stock stays where it is, and what happens if your short call is assigned.
- Your chance of making a profit and your return on risk.
- A chart of your profit or loss at different stock prices, today, at two dates in between, and at the short call's expiry. Hover over the chart (or tap it on a phone) to read exact values.
- A table of profit or loss by stock price and date, shown in dollars or as a percentage of your cost.

You can find the premiums in your broker's option chain. Use the mid-price between the bid and the ask for a realistic figure. Under "Manual settings" you can enter one implied volatility for both calls, change the interest rate, or set the price range shown in the chart and table.

When is a Poor Man's Covered Call a good choice?

- You're mildly bullish on a stock over the longer term and want monthly income from it.
- You'd like a covered call but don't want to tie up the money to buy 100 shares.
- You can choose a long call that's deep in the money, with a delta of around 0.70 to 0.85, so it moves closely with the stock.

When might it not suit?

- You expect a big rise. The short call caps your gains until it expires.
- You expect a big fall. The long call can lose value quickly, and the short call's premium only cushions a small drop.
- The gap between the two strikes is too small. Check the "If called away" figure: if it's negative, you'd lose money if assigned.

Things to keep in mind

- A useful rule: the gap between the strikes plus the short call's premium should be more than what you paid for the long call.
- If the stock rises past your short strike, you can often buy back the short call and sell a new one further out (a "roll").
- If your short call is assigned, you can exercise or sell the long call to cover it. Selling usually keeps its remaining time value.
- Roll or replace the long call well before its own expiry, while it still has plenty of time left.

This calculator gives estimates for educational purposes only. It isn't financial advice. Option prices before expiry are modelled, and real prices will differ.