What is a poor man's covered call, in plain words?
A poor man's covered call is a long call diagonal debit spread used to replicate a covered call 1: a longer-term call with a lower strike is bought and a shorter-term call with a higher strike is sold 2, the long call standing in for the shares. It is named for needing less capital than buying the stock outright 1. The most it can lose is the net cost of the spread 2.
A $50 stock, 30% implied volatility (made-up numbers): a $35 call with a year left bought, a $52 call with 30 days sold. Move where the stock is when the short call expires; the picture assumes implied volatility is still 30% then.
In numbers
By the formula the one-year $35 call costs $16.99 a share (its delta is 0.93) and the 30-day $52 call sells for $0.99 3: the spread costs $16.00, $1,600 a contract, against $4,901 for 100 shares with the same call sold against them. If the stock is at $52 when the short call expires, and implied volatility unchanged, the long call is worth $18.69 3: a gain of $2.69 a share, against $2.99 for the covered call.
The trade-off
Less capital, and the long call expires: it has to be sold or replaced, at whatever it is worth then. Fidelity's guide notes that a long diagonal with calls generally has a net negative theta and a net positive vega when first established 2; in this example, with the long call deep in the money, the formula gives it only 0.6¢ a day of theta against 2.9¢ for the short call, so here time works for the position, and its break-even depends on implied volatility at the time 2.
What this shows, and what it doesn't
Model prices for one volatility, no dividend, before fees and the bid-ask spread on two options. The short call can be exercised against you before expiry 4, and a long call is not shares: delivering them means buying them, or exercising it.
Go further
Sources (4), checked 20 October 2026, 27 October 2026 and 28 October 2026
- tastylive, “Poor Man's Covered Call – What is it?”. Read it (read 28 October 2026)
- Fidelity, “Long diagonal spread with calls” (Options Strategy Guide). Read it (read 28 October 2026)
- Fischer Black and Myron Scholes, “The Pricing of Options and Corporate Liabilities”, Journal of Political Economy 81(3), 637–654, 1973. Read it (read 20 October 2026)
- FINRA, “Trading Options: Understanding Assignment” (14 December 2020). Read it (read 27 October 2026)
Now try it on a scenario of your own
Pick where a simulated stock might be, and by when: drag one dot and see, side by side, what buying shares, one option, or a pair of options (a call or put spread) would each do. Free, no sign-up.
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