DocsStrategies

Long Call Diagonal (PMCC)

Buy a deep ITM LEAP call, sell a near-term OTM call. Poor man's covered call — leveraged income.

8 min readincomedirectionaltwo expirationsPMCC

The long call diagonal — better known as the Poor Man’s Covered Call (PMCC) — replaces 100 shares of stock with a deep in-the-money LEAP call. You then sell short-term OTM calls against the LEAP, collecting income each cycle just like a covered call. The difference: instead of tying up $18,500 to own 100 shares of AAPL, you spend a fraction of that on the LEAP. Same income engine, much less capital.

Outlook
Bullish. Collect income while maintaining leveraged upside.
Legs
2 (long deep ITM back-dated call, short OTM near-dated call)
Max loss
Defined: net debit paid
Max profit
Defined: short strike − long strike − net debit
IV preference
Moderate. Sell elevated front-month IV against cheap back-month.
Best regime
Mildly bullish, moderate IV.

The structure

Think of a covered call, but instead of owning the stock, you own a deep ITM call option with a long expiration (the LEAP). That LEAP acts as a stock substitute — it moves nearly dollar for dollar with the underlying because its delta is close to 1.0. Then you sell a shorter-dated OTM call against it, just like you would against shares.

  • Long leg: buy one deep ITM call, 120-270 DTE (the LEAP). Target delta 0.70-0.85 — deep enough to behave like stock, but far enough from ATM to keep the extrinsic value low.
  • Short leg:sell one OTM call, 20-45 DTE. Target delta 0.20-0.30 — the same zone you’d pick for a regular covered call.

The key requirement: the short call strike must be above the long call strike. If the stock rallies past the short call strike, you can exercise your LEAP to deliver the shares, pocketing the difference between the strikes minus the net debit.

Worked example

AAPL is at $185. You want covered-call income but don’t want to commit $18,500 to buy 100 shares.

  • Buy the 180 DTE $160 call (delta ~0.80) for $28.00
  • Sell the 30 DTE $190 call (delta ~0.25) for $3.00
  • Net debit: $25.00 ($2,500 per diagonal)
  • Max loss: $2,500 (if AAPL drops below $160 at LEAP expiration)
  • Max profit per cycle: $190 − $160 − $25 = $5.00 per share ($500)
  • Capital deployed: $2,500 vs. $18,500 for a traditional covered call

If AAPL stays below $190 in 30 days, the short call expires worthless and you keep the $300. Your net cost in the LEAP drops to $22. Sell another 30-DTE call and repeat. After three or four cycles, the income collected may cover a significant portion of the LEAP cost. If AAPL rallies past $190 and you’re assigned, exercise the LEAP — you buy at $160, sell at $190, and net $3,000 minus the $2,500 debit = $500 profit.

When to use it

  • Want covered-call income but can’t afford 100 shares. The PMCC requires a fraction of the capital of owning stock. For capital-constrained accounts, this is the primary use case.
  • Bullish long-term view. You need the stock to stay above the LEAP strike over the life of the position. If your thesis is neutral, a calendar spread is a better fit.
  • Moderate IV environment. You want front-month IV high enough that the short calls generate meaningful income, and back-month IV low enough that the LEAP is reasonably priced.

How Tradient ranks them

The PMCC scanner finds LEAP calls with delta above 0.70 and extrinsic value below a configurable threshold (default: 15% of the option price). It then pairs each LEAP with the highest-credit OTM short call in the front-month DTE window. The scanner outputs the per-cycle yield (short call premium divided by net debit) and the total cost basis after the first sale.

Tradient Score favors PMCCs where the LEAP has at least 80% intrinsic value, the short call delta is between 0.20-0.30, and the per-cycle yield exceeds 3%. It penalizes setups where the short strike is too close to the LEAP strike, since that limits the profit zone.

Managing the trade

Roll the short call monthly

This is the core mechanic. Each month, let the short call expire or buy it back, then sell the next cycle. Target 50-75% of max premium before rolling — don’t squeeze the last 25% of time value.

Short call is breached

If the stock rallies through the short call strike, you can roll up and out for a credit, or let assignment happen. If assigned, exercise the LEAP to deliver shares and take the spread profit. Only roll if the new position still has a positive expected value.

Close if the LEAP loses intrinsic

If the stock drops significantly and the LEAP delta falls below 0.60, the position stops behaving like a covered call and starts behaving like a pure long option. At that point, the income from short calls won’t compensate for the LEAP’s decline. Close the position and reassess.

The LEAP is your stock substitute
The deeper ITM your LEAP is, the more it behaves like stock. A delta-0.80 LEAP moves $0.80 for every $1 the stock moves. That’s close enough for income purposes. If you buy a LEAP with delta below 0.70, you’re paying too much for extrinsic value and the “covered call” analogy breaks down.

Common mistakes

  • Buying a LEAP with too little intrinsic value. If the LEAP is only slightly ITM, it has a large extrinsic component that erodes over time — the same disease you’re selling on the short side. Buy deep enough that the LEAP is mostly intrinsic (delta 0.75+).
  • Short call too close to the LEAP strike. If you buy the $160 LEAP and sell the $165 call, your max profit is only $5 minus the $25+ debit — terrible R:R. Give the short call at least $20-$30 of room above the LEAP strike.
  • Ignoring early assignment on the short call. The short call is American-style and can be exercised any time, especially near ex-dividend dates. If assigned, you must exercise the LEAP to cover, burning all remaining time value. Monitor ITM short calls near dividends.
  • Forgetting the LEAP expires too.A 180 DTE LEAP isn’t forever. After six monthly cycles it’s gone. Plan to roll the LEAP itself into a later expiration when it reaches 60-90 DTE remaining — while it still has meaningful time value to trade.

Where to go next