Poor man's covered call
A deep in-the-money long-dated call in place of shares, with near calls sold against it.
Bullish2 legsDebit
Illustrative: underlying at 100, strikes every 2.5, long-dated leg 1 year, short leg 45 days, implied volatility 25%, model prices. One lot = 100 shares.
Key figures
| Opens for | a debit of $1,773 |
|---|---|
| Max profit | +$517 |
| Max loss | −$1,773 |
| Break-even | 98.73 |
| Position delta today | +47 shares |
| Outlook | Bullish |
The legs
| Action | Quantity | Option | Model price |
|---|---|---|---|
| Buy | 1 | 87.5 call, 1 year | 19.53 |
| Sell | 1 | 105 call, 45 days | 1.79 |
How it works
A deep in-the-money long-dated call in place of shares, with near calls sold against it. Time spreads use options with different expiry dates. The near option loses value faster, and the payoff is read at the near (front) expiry while the later option still has time left.
When it fits
It suits a view that the underlying holds up or rises before expiry.
What can go wrong
The most it can lose at expiry in this example is −$1,773. Short options can be assigned early, and a sharp fall with implied volatility rising can hurt more than the expiry line suggests, which is what the crash band shows. Because a later option is still open at the front expiry, the result there depends on implied volatility at that time, not only on the price.
Building it in Trident
In the Strategy Lab, choose poor man's covered call and the days to expiry. Trident applies these strike rules to your live chain, prices each leg and draws the trade on the risk graph, where you can drag the days to expiry, change implied volatility or switch on the crash band. When it looks right, send it to order management; nothing reaches your broker until you send it.
Frequently asked questions
What is a poor man's covered call?
A deep in-the-money long-dated call in place of shares, with near calls sold against it.
What is the maximum loss on a poor man's covered call?
In this illustrative example it is −$1,773 for one lot at expiry.
Where does a poor man's covered call break even?
With the underlying at 100 in this illustrative example, the break-even at expiry is 98.73.
Can I build a poor man's covered call in Trident?
Yes. Pick it in the Strategy Lab and Trident chooses the strikes from your live chain, prices the legs and draws it on the risk graph.
Illustrative example with model prices, not a recommendation. Options carry risk of loss. See the risk disclosure.