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Poor Man's Covered Call - What is it? What is a poor man’s covered call? A poor man’s covered call (PMCC) is a long call diagonal debit spread that is used to replicate a covered call position. A traditional covered call uses long stock to “cover” the risk in the short call, while a PMCC uses a long-term call option instead. The PMCC is therefore a more capital-efficient way to simulate the covered call strategy without actually owning the stock. The PMCC is often utilized by investors that wish to deploy a neutral to bullish outlook. A PMCC might therefore be used to express a bullish outlook on a stock or ETF, or in a case where the investor or trader is seeking to generate additional income from a neutral outlook. How does a poor man’s covered call work? A poor man’s covered call mimics the dynamics of the covered call strategy but at a fraction of the capital requirement.  When you own a long-term in-the-money (ITM) call, the directional exposure is similar to owning 100 shares of stock. With that said, the call is still cheaper to buy than 100 shares outright. When you own a long call, you can sell a call against it to reduce the cost basis of the option while capping the upside profit potential of the long call itself. Structure of a Poor Man's Covered Call (PMCC) Buy an Out-Month ITM Call Option: Instead of owning the stock, you buy a back-month call option (this may be a deep in-the-money LEAP). Sell a Near-Term OTM Call Option: You sell a shorter-term out-of-the-money call option on the same stock.  In the above structure, the long-term call option acts as a substitute for owning the actual stock.  The “poor man’s covered call” gets its name because it requires less capital than buying the stock outright.  If the stock price rises above the strike price of the short-term call you sold, you benefit from the difference in premiums and the price appreciation of the long-term call. Most traders just trade the difference between the entry and exit price for this strategy, rather than intending to obtain shares with the long call, but that is certainly possible as well. Ideally, the short call option will expire worthless, allowing the investor or trader to collect and retain the option’s premium, while the underlying stock's price gradually rises, boosting the value of the long back-month call option