Poor Man's Covered Call Calculator

A poor man's covered call replaces the shares of a covered call with a deep-in-the-money, long-dated call, then sells a shorter-dated call against it. The long call moves nearly one for one with the stock for a fraction of the cost of one hundred shares, so the short call's premium represents a much larger return on the capital used.

When it is used

Investors use it to run a covered call program on stocks that would otherwise tie up too much capital, or to get stock-like exposure with a floor on the loss, since the most that can be lost is the net debit. The long leg is usually a LEAPS call with a high delta; the short leg is written a month or so out and renewed.

How it makes and loses money

A rising stock and the short call decaying are the sources of profit. The risk is in the two expiries: if the stock runs far above the short strike, the short call gains faster than the long one and the position can show a loss near its expiry, something a covered call with shares never does. A large fall loses money on the long call, capped at its cost.

What to check in the grid

Watch the columns around the short call's expiry at prices above its strike. That is where the diagonal structure bites. Then look at the rows below the long strike to see the floor that shares would not have.