bullishPays debit

Call Diagonal (Poor Man's Covered Call)

A call diagonal buys a longer-dated call at a lower strike and sells a nearer-dated call at a higher strike. Done with a deep-in-the-money long leg, it's the 'poor man's covered call' — covered-call income at a fraction of the capital.

When it makes sense

You're bullish and want covered-call-style income without buying 100 shares
The long leg is deep enough in the money (0.6–0.8 delta) to track the stock
You plan to keep selling new front-month calls against the long leg

How it works

Buy a back-month call (often 0.6–0.8 delta), sell a front-month call at a higher strike, for a net debit. Max value at the front expiry lands with the stock at the short strike. The short call's premium repeatedly reduces your cost basis as you roll it.

Risk & reward

Maximum loss: the net debit — far less capital at risk than a covered call on the same stock. Upside is capped near the short strike until the front leg expires. The trade's real engine is rolling the short call; a single cycle understates its yield.

Worked example

Stock at $200. Buy the 90-day $180 call for $26, sell the 30-day $210 call for $4 — a $2,200 debit versus $20,000 for shares. Stock at $210 at the front expiry: position worth ~$32 — a ~$600 gain, plus the next round of call selling.

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