Poor Man's Covered Call Calculator

How to use the poor man's covered call calculator

1. Enter the stock price and an implied volatility for the probability estimate.
2. Enter the short front-month call: its strike (usually above the stock price), premium, days to expiration, and implied volatility.
3. Enter the long back-month call: a deep in-the-money strike, its premium, its later days to expiration, and its implied volatility. The long call's IV matters because the calculator reprices it at the short call's expiration.
4. Set the number of contracts.
5. Read the net debit, max loss, breakeven, and the curved payoff at the front expiration.

How it's calculated

Because the long call outlives the short call, a PMCC has no single expiration payoff. The calculator follows the standard convention and values the position on the day the short call expires: the short call is worth its intrinsic value, and the long call is priced with Black-Scholes using its own implied volatility, the days it has left, and a 4.5% risk-free rate. That is why the chart is a curve rather than straight lines.

These are the same multi-expiration functions the OptionClaws scanner uses for call diagonals, so a PMCC here is scored the way the PMCC screener scores it.

• Net debit: long call premium minus short call premium, times 100.
• Profit or loss at the front expiration: the long call's Black-Scholes value minus the short call's intrinsic value, minus the net debit.
• Breakevens: found numerically where that curve crosses zero, refined by bisection.
• Max profit and max loss: the highest and lowest values on a grid of stock prices plus far-out checks; the max loss is at most the net debit when the long strike is below the short strike.
• Return on risk: max profit divided by max loss. Annualized return: that times 365 over the short call's days to expiration.
• Probability of profit: the lognormal-model chance the stock finishes in the profitable range at the front expiration, using the implied volatility you enter at the top.

Assumptions and limitations

• Results are at the short call's expiration (the front expiration), with the long call's IV held at what you enter. If volatility falls, the long call is worth less than shown.
• Probability of profit is a model output, not a forecast.
• Early assignment of the short call is ignored. A PMCC holds no shares, so an assigned short call leaves you short stock until you act.
• Dividends, fees, and commissions are excluded. Unlike shares, the long call does not collect dividends.
• Premiums are taken as entered; the defaults are illustrative estimates.

Frequently asked questions

What is a poor man's covered call?

A long deep in-the-money call with a later expiration, plus a short out-of-the-money call with a nearer expiration. The long call stands in for the shares at a fraction of their cost, and the short call collects premium like a covered call.

How is PMCC max loss calculated?

When the long strike is below the short strike, the most you can lose is roughly the net debit you paid, reached if the stock collapses and both calls lose their value. The calculator measures it at the short call's expiration from the modeled curve.

Why is the payoff chart curved?

At the front expiration the long call still has months left, so it carries time value that depends on the stock price. The calculator prices it with Black-Scholes at each point, which bends the line.

Which strikes do traders usually pick?

A common convention is a long call deep enough in the money to move almost one for one with the stock, several months out, and a short call a little above the stock in the next monthly cycle. Try different combinations here to see how the breakeven and max loss change.

What if the stock rallies past the short strike?

The short call gains value as fast as the long call near expiration, so profit levels off. If the stock rallies far enough, the long call's remaining time value shrinks and the curve bends back down, which the chart shows.

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