Poor Man's Covered Call Calculator

Calculate net debit, maximum profit, break-even and capital saved when replacing stock with a deep in-the-money LEAPS call.

A poor man's covered call replaces the shares in a covered call with a long-dated, deep in-the-money call, usually a LEAPS contract, so a poor man's covered call calculator has to price two options rather than a stock holding and an option. A near-dated out-of-the-money call is written against that long call instead of against stock, which is why the position is a diagonal spread wearing a covered call's clothes, and why the same structure is listed elsewhere as a LEAPS covered call, a synthetic covered call or simply a PMCC.

Formula: max profit = short strike - long strike - net debit, per share x multiplier

Your figures

Currency

Long call strike

Strike of the long, deep in-the-money, long-dated call standing in for the shares.

Long call price per share

What the long call costs, per share.

Short call strike

Strike of the near-dated call written against it. It must sit above the long strike.

Short call price per share

What the short call brings in, per share.

Current price

Price of the underlying now. Splits the long call's price into intrinsic and time value.

Number of contracts

Shares per contract

Shares one contract covers — 100 on US equity options. Take it from your own contract specification.

Share purchase price

Optional — what you would pay a share to buy the stock outright instead. Defaults to the current price.

Commission per contract

Your own broker's rate. Counted on the way in and on the way out of each leg.

Results

Maximum profit at expiry

+US$797.40

on a net debit of US$2,202.60, with both legs held to expiry

Net debitUS$22.00 a share across 100 shares, plus US$2.60 of commission on four legs.: US$2,202.60
Break-even at expiryLong strike plus the debit per share. Below this the long call alone does not recover what was paid for the spread.: US$102.03
Maximum lossThe whole debit, which is what happens if the underlying finishes at or below the long strike.: US$2,202.60
Distance between the strikesThe most the spread can be worth at expiry, per share. Whatever the debit does not consume of that distance is the profit, and nothing beyond it is reachable.: US$30.00
Long call, intrinsic and time valueIntrinsic first, then the time value paid on top of it. The deeper in the money the long call, the smaller the second figure as a share of the price.: US$20.00 · US$5.00
Return on the debitMaximum profit as a percentage of the capital the diagonal commits.: 36.20%
Capital saved against buying the sharesUS$10,000.00 to hold 100 shares outright against US$2,202.60 here — 77.97% less.: US$7,797.40

What this means

Paying US$22.00 a share for the diagonal commits US$2,202.60, against US$10,000.00 to hold 100 shares outright — 77.97% less capital for a similar exposure to the same shares. Held to expiry the spread cannot be worth more than the US$30.00 between the strikes, so the arithmetic caps the result at US$797.40 and the loss at the whole US$2,202.60 debit. The long leg recovers what was paid once the underlying reaches US$102.03. The leverage that lowers the capital is the same leverage that removes the dividends and adds an expiry date the shares do not have.

Maximum profit assumes both legs run to expiry. The short call expires first and the long call still holds time value at that point, so the position is usually worth more than this on the day the short leg settles.
The two legs expire on different dates. Once the short call is gone the long call is exposed to the underlying on its own, and it decays faster the closer its own expiry comes.
Buying the shares outright would pay any dividends. The long call pays none, and an approaching dividend is a common reason for an in-the-money short call to be assigned early.
American-style options can be assigned at any time before expiry, not only on the expiry date.
Commission is counted as a round trip on every leg — once to open and once to close. If you intend to let the option expire rather than buying it back, enter half your per-contract rate.

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Continue with these figures

About the Poor Man's Covered Call calculation

The appeal is arithmetic rather than clever: a deep in-the-money call with a delta close to one tracks the underlying nearly point for point while costing a fraction of what the shares cost. The same fraction is the whole risk. Leverage magnifies the outcome in both directions, the long call pays no dividends, and unlike shares it has an expiry date after which it is worth its intrinsic value and nothing else.

The arithmetic underneath is that of a diagonal spread calculator: it works out the net debit, the maximum profit and loss with both legs held to expiry, the break-even price of the underlying, the split of the long call's price into intrinsic and time value, and the capital saved against buying the shares outright. It also performs the one check no broker ticket makes — whether the debit paid exceeds the distance between the two strikes.

Poor Man's Covered Call formula

shares controlled   = contracts × shares per contract
net debit per share = long call price − short call price
commission          = rate per contract × contracts × 4
net debit           = net debit per share × shares controlled + commission

strike width = short strike − long strike
max profit   = (strike width − net debit per share) × shares − commission
max loss     = net debit
break-even   = long strike + net debit per share + commission per share

long intrinsic  = max(underlying − long strike, 0)
long time value = long call price − long intrinsic

capital saved   = share price × shares − net debit
return on debit = max profit ÷ net debit × 100

net debit: What the spread costs to open: the long call less the short call, across every share, plus commission on four legs.
strike width: Short strike less long strike — the most the spread can be worth at expiry, per share.
break-even: The underlying price at which the long call alone recovers what was paid for the spread.
time value: The part of the long call's price above its intrinsic value: what is paid for the remaining life, and what decays.
capital saved: The difference between buying the shares outright and paying the debit for a similar exposure.

The long call stands in for the shares because delta is what a covered call actually needs from its stock leg. A call struck well below the underlying has an intrinsic value that moves one-for-one with the price and a small time value on top, so its delta approaches one and it behaves like the shares for a fraction of the outlay. The shallower that call sits, the worse the substitution becomes: delta falls, time value grows as a proportion of the price, and the position drifts away from the covered call it is meant to imitate.

Maximum profit and maximum loss are two ends of the same quantity, and stating them that way is the clearest thing about the structure. Held to expiry the spread cannot settle for more than the distance between the strikes, so whatever that distance does not cover is the loss: max profit plus max loss equals the strike width across the shares. Commission sits on both sides of that identity and cancels out of it, which makes it a genuine check rather than an approximation.

From that identity comes the check worth making before anything else. If the net debit exceeds the strike width across the shares, the position is behind at every underlying price at expiry — the spread's ceiling is below what was paid for it, and no move in either direction can rescue the trade. It is an easy state to arrive at, because a long call chosen for its delta is judged against the cost of the shares rather than against the strike written above it, and the ticket that fills the order says nothing about the relationship between the two.

The break-even sits at the long strike plus the debit per share rather than anywhere near the underlying's current price, which surprises people the first time they see it. At expiry the long call is worth the underlying less its strike, so it takes exactly the debit above that strike to get back what the spread cost. Every price below the break-even is a partial loss and every price at or below the long strike is the whole debit gone.

Maximum profit is a floor in practice rather than a ceiling, and this is where the arithmetic understates the position. The two legs expire on different dates: the short call goes first while the long call still holds time value, so on the day the short leg settles the spread is normally worth more than the expiry figure. That residual time value is also what a trader intends to sell again, which is why the position is usually a series of short calls against one long call rather than a single trade held to a single date.

The capital comparison is honest in one direction and incomplete in the other. Controlling a hundred shares for a quarter of their price is a real reduction in capital committed, and it is also a real increase in the proportion of that capital at risk, since the shares can fall a long way and recover while the long call simply expires. Buying the shares outright would collect any dividends, and an approaching dividend is one of the most common triggers for an in-the-money short call to be assigned early.

Poor Man's Covered Call: a worked example

One 80-strike long call bought at 26.50 with the underlying at 100, and a 110-strike call written against it for 3.40, at 0.65 of commission a contract.

Net debit per share26.50 − 3.40 = 23.10
Commission on four legs0.65 × 1 × 4 = 2.60
Net debit23.10 × 100 + 2.60 = 2,312.60
Distance between the strikes110 − 80 = 30.00
Maximum profit at expiry(30.00 − 23.10) × 100 − 2.60 = 687.40
Maximum lossthe whole debit, 2,312.60
Break-even80 + 23.10 + 0.026 = 103.13
Long call, intrinsic and time value100 − 80 = 20.00, leaving 6.50
Capital saved10,000 − 2,312.60 = 7,687.40, or 76.87%
Return on the debit687.40 ÷ 2,312.60 = 29.72%

2,312.60 controls exposure to 100 shares that would cost 10,000 to hold outright — 76.87% less capital for a similar position. Held to expiry the spread cannot be worth more than the 30.00 between the strikes, so the result is capped at 687.40, which is 29.72% of the debit, and the loss is the full 2,312.60 if the underlying finishes at or below 80.

How to use the Poor Man's Covered Call calculator

Enter the long call's strike and what it costs per share. The strike should sit well below the underlying if the call is to behave like the shares.
Enter the short call's strike and the premium it brings in. It must be above the long strike — selling at or below it is a different position with a different risk profile.
Enter the current price of the underlying. It splits the long call's price into intrinsic value and time value, which is the clearest single measure of how good a stock substitute the long leg is.
Set the number of contracts and the shares each covers, then your own commission per contract. Four legs are charged here, since both legs are opened and both are closed.
Leave the share purchase price blank to compare against buying at today's price, or enter a different figure if you have a specific alternative entry in mind.
Check the position check row before anything else. If it appears, the debit exceeds the strike width and the structure cannot return a profit at expiry at any price, which is a reason to change the strikes rather than the size.
Read the break-even against where the underlying trades now, and the long call's time value against the short call's premium — the second tells you how much of the long leg's decay one round of selling actually covers.

Limitations of the Poor Man's Covered Call calculator

Every calculation makes assumptions. These are the ones that matter here.

Maximum profit assumes both legs are held to expiry, which is not how the position is normally run. The short call expires first while the long call retains time value, so the real result on that day is usually better than the figure shown.
Nothing here models the long call's decay between now and its own expiry. Time value is reported as a level at today's price, not as a rate, and the rate accelerates as the long leg approaches its own expiry date.
The comparison against buying shares counts capital only. It excludes the dividends the shares would pay, the borrowing cost of holding them on margin, and the fact that shares do not expire while the long call does.
Early assignment on the short call is treated as a note rather than modelled. An in-the-money short call over a dividend is the classic case, and it can close the short leg at a time and price of someone else's choosing.
Both legs are priced at the figures entered. Diagonal spreads on illiquid chains can carry a wide bid-ask spread on each leg, and paying the ask on the long call while taking the bid on the short one moves the debit measurably.
Volatility is absent from the calculation. A change in implied volatility affects the long-dated leg more than the near-dated one, so the position has a vega exposure that this expiry-based arithmetic does not represent.
The break-even applies at the long call's expiry. Before that date the long leg still carries time value, so the position breaks even at a lower underlying price than the figure reported.

Frequently asked questions about Poor Man's Covered Call

How is a poor man's covered call different from a covered call?

The stock is replaced by a long-dated deep in-the-money call, so the capital required falls sharply and the exposure becomes leveraged. Everything that follows comes from that swap: no dividends, an expiry date on the substitute, a defined maximum loss equal to the debit, and a profit capped by the distance between the two strikes.

Why must the net debit be smaller than the distance between the strikes?

Because held to expiry the spread can never be worth more than that distance. Paying more than it means the ceiling on the position sits below its cost, so every underlying price produces a loss and no favourable move closes the gap. The PMCC calculator raises this as its own row because a broker's ticket never compares the two.

How deep in the money should the long call be?

The calculator does not choose a strike, but it shows the trade-off directly. A deeper long call costs more and carries less time value as a share of its price, so it tracks the underlying more closely; a shallower one is cheaper and behaves less like the shares. The intrinsic and time value row is where that comparison is read.

What happens when the short call expires before the long one?

The short leg settles and the long call remains, exposed to the underlying on its own and still holding time value. That is the point at which most traders write another short call against it, which is why the maximum profit figure here should be read as one round of a repeated process rather than as the end of the trade.

Do I receive dividends on a poor man's covered call?

No. A long call carries no entitlement to dividends, so any yield the shares would have paid is forgone. The dividend also works against the position in a second way: an approaching ex-dividend date is a common reason for an in-the-money short call to be assigned early, which closes the short leg sooner than planned.

Why does the break-even sit so far above the current price?

Because at expiry the long call is worth only the underlying less its strike, so the price has to reach the long strike plus the whole debit for the spread to recover what it cost. Before expiry the long leg still holds time value, so the position is level at a lower price than the reported break-even — which applies on the expiry date alone.

Last reviewed 29 August 2026. See our methodology and editorial policy.

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