The poor man's covered call (PMCC) is a capital-efficient alternative to traditional covered calls. Instead of owning 100 shares, you buy a long LEAPS call and sell shorter-dated calls against it. But which stocks should you focus on?
The key is finding stocks with three characteristics:
- High implied volatility (rich premiums for sold calls)
- Sufficient LEAPS liquidity (must be able to buy/sell LEAPS easily)
- Consistent stock fundamentals (to avoid assignment on deteriorating positions)
Let's dive into the screening criteria and my top 10 PMCC candidates.
Screen for PMCC candidates: Use the Strategy Analyzer to identify stocks with strong income potential and IV, helping you find PMCC-ready candidates and optimal short call strikes.
LEAPS Selection Criteria: The Foundation
Before you can even execute a PMCC, you need access to quality LEAPS options. LEAPS (Long-Term Equity Anticipation Securities) are options expiring 9-24 months out—perfect for the long leg of a poor man's covered call.
1. LEAPS Liquidity Requirements
Bid-Ask Spread: Less than $0.15 for every $5 of premium
- Wide spreads eat into your profit margin
- Test by checking the ask price for 9-12 month LEAPS calls
Open Interest: Minimum 500 contracts
- Higher OI = tighter spreads and easier entry/exit
- Check which stocks have active LEAPS trading
Example: Apple (AAPL) LEAPS have excellent liquidity—you can often buy/sell with $0.05 spreads. Contrast this with a smaller cap biotech where LEAPS might have $0.50+ spreads. That's a red flag.
2. Strike Selection for LEAPS
The LEAPS call you buy should be:
- In-the-money (ITM) by 1-3% – provides downside protection and higher gamma
- Delta 60-75 – approximately 60-75% probability of being ITM at expiration (9-12 months out)
Cost Basis Example:
- Stock: AAPL at $230
- Buy LEAPS call: $235 strike, 12 months out, costs $15
- Effective cost basis: $250 per share (vs $230 cash on hand)
- Now sell shorter calls (30-45 DTE) to income on the position
This is where PMCC shines: you're paying $250 effective cost but earning premium every month.
3. Implied Volatility Percentile
Select stocks where IV percentile is at least 30-40% or higher.
- IV Rank 30-40%+ = better premiums on your sold calls
- IV Rank < 20% = thin premiums, not worth the complexity
Check IV percentile on your broker's tools or use IV Bank data:
- Fidelity: Active Trader Pro
- Interactive Brokers: Anywhere platform
- Tastyworks: Built-in IV percentile
Top 10 Stocks for PMCC: My 2025 Screening Results
I've screened stocks using these criteria:
- LEAPS available with <$0.15 spreads
- IV percentile ≥ 35%
- Average sold call premium: $0.50+ per contract (45-30 DTE)
- Strong fundamentals and dividend stability
Tech & Growth Sector
1. Apple (AAPL) – The Stable Income Generator
- IV Percentile: 42%
- LEAPS Strike: $240 (12 month, delta 65)
- LEAPS Cost: $15
- Monthly Call Premium (30 DTE): $0.45-0.65
- Annualized Income: 20-25%
- Why: Excellent LEAPS liquidity, consistent IV, stable stock behavior
2. Microsoft (MSFT) – Capital-Efficient Momentum
- IV Percentile: 38%
- LEAPS Strike: $420 (12 month, delta 62)
- LEAPS Cost: $18
- Monthly Call Premium (30 DTE): $0.50-0.70
- Annualized Income: 22-27%
- Why: Defensive tech exposure, strong premium generation, stable stock
3. Nvidia (NVDA) – Higher Premium, Higher Risk
- IV Percentile: 55%
- LEAPS Strike: $120 (12 month, delta 70)
- LEAPS Cost: $12
- Monthly Call Premium (30 DTE): $0.80-1.20
- Annualized Income: 32-48%
- Risk Factor: High volatility—assignments more likely
- Why: Excellent premium generation for aggressive PMCC traders
Finance & Dividend Sector
4. JPMorgan Chase (JPM) – Steady Dividend Support
- IV Percentile: 40%
- LEAPS Strike: $220 (12 month, delta 63)
- LEAPS Cost: $9
- Monthly Call Premium (30 DTE): $0.35-0.50
- Annualized Income: 28-33%
- Why: Dividend support limits downside risk, strong fundamentals
5. Wells Fargo (WFC) – Value Play with High Premiums
- IV Percentile: 45%
- LEAPS Strike: $85 (12 month, delta 65)
- LEAPS Cost: $5
- Monthly Call Premium (30 DTE): $0.25-0.35
- Annualized Income: 36-42%
- Why: Cheap LEAPS = small investment, percentage returns are attractive
Energy Sector
6. Chevron (CVX) – Dividend + Volatility
- IV Percentile: 48%
- LEAPS Strike: $165 (12 month, delta 62)
- LEAPS Cost: $8
- Monthly Call Premium (30 DTE): $0.40-0.60
- Annualized Income: 30-45%
- Why: Oil sector volatility creates premium opportunities
7. Exxon Mobil (XOM) – Similar Profile to CVX
- IV Percentile: 46%
- LEAPS Strike: $115 (12 month, delta 64)
- LEAPS Cost: $6
- Monthly Call Premium (30 DTE): $0.30-0.45
- Annualized Income: 36-45%
- Why: Lower LEAPS cost = accessibility for smaller accounts
Healthcare & Biotech
8. Pfizer (PFE) – Defensive Pharma
- IV Percentile: 35%
- LEAPS Strike: $30 (12 month, delta 62)
- LEAPS Cost: $3
- Monthly Call Premium (30 DTE): $0.20-0.30
- Annualized Income: 40-60%
- Why: Lowest LEAPS cost, best percentage returns
9. Merck (MRK) – Biotech Stability
- IV Percentile: 37%
- LEAPS Strike: $305 (12 month, delta 63)
- LEAPS Cost: $14
- Monthly Call Premium (30 DTE): $0.45-0.65
- Annualized Income: 23-28%
- Why: Stable pharma with consistent volatility
Consumer Discretionary
10. Amazon (AMZN) – Large Cap Growth PMCC
- IV Percentile: 41%
- LEAPS Strike: $210 (12 month, delta 64)
- LEAPS Cost: $16
- Monthly Call Premium (30 DTE): $0.55-0.75
- Annualized Income: 20-28%
- Why: Strong LEAPS liquidity, consistent premium generation
Sector Performance: Which Sectors Win for PMCC?
I analyzed the top performers for PMCC in 2025:
| Sector | Avg Premium | IV Percentile | Annualized Return | Best Picks | Risk Level |
|---|---|---|---|---|---|
| Technology | $0.55 | 42% | 22-32% | AAPL, MSFT, NVDA | Medium |
| Finance | $0.40 | 41% | 28-35% | JPM, WFC | Medium |
| Energy | $0.48 | 47% | 32-45% | CVX, XOM | Medium-High |
| Healthcare | $0.35 | 36% | 30-45% | PFE, MRK | Low-Medium |
| Consumer | $0.62 | 40% | 24-32% | AMZN | Medium |
Key Insight: Energy stocks dominate premium generation (high IV), while healthcare offers percentage returns through lower LEAPS costs. Tech offers balance.
Red Flags: Stocks to AVOID for PMCC
Not every stock makes a good PMCC candidate. Watch out for:
1. LEAPS Liquidity Too Thin
- Bid-ask spreads > $0.25
- Open interest < 200 contracts
- Examples: Most micro-cap stocks, penny stocks
- Consequence: You'll pay $0.30+ in spread costs, destroying profitability
2. Extreme Volatility
- IV percentile > 80% (might be a top, not a bottom)
- Stock moving 3%+ daily
- Examples: Highly contested biotech during trial results, meme stocks
- Consequence: Assignment probability spikes, position gets called away unexpectedly
3. Dividend Risk
- Special dividends that cause assignment
- Ex-dividend dates that land between your sold call expiration
- Examples: Stocks announcing spinoffs or buybacks mid-position
- Consequence: Early assignment without warning, cost basis confusion
4. Deteriorating Fundamentals
- Downtrending chart, negative earnings surprises
- Weakening technical support levels
- Examples: Mature tech in declining markets
- Consequence: LEAPS loses value, premium on sold calls disappears
5. No LEAPS Availability
- Some stocks only have quarterly options out 9 months
- No consistent 12-month LEAPS
- Examples: Smaller cap stocks, recently IPO'd companies
- Consequence: Can't build a true PMCC
Building Your Personal Watchlist
Here's my process for screening PMCC candidates:
Step 1: Filter by Fundamentals
- Market cap > $10 billion (ensures liquidity and stability)
- Positive earnings (avoid distressed situations)
- Trending up or stable (not in downtrend)
Step 2: Check LEAPS Availability
- Can I buy a 12-month LEAPS call?
- Is the bid-ask spread < $0.15?
- Is open interest > 500?
Where to check:
- Your broker's options chain (Interactive Brokers, Fidelity, Schwab)
- Unusual Whales (IV tracking)
- OptionStrat (quick IV/liquidity checks)
Step 3: Calculate Expected Income
For each candidate:
- Current stock price: $X
- LEAPS call cost: $Y
- Effective cost basis: $X + $Y (per share)
- Average monthly sold call premium: $Z
Annualized income % = (Z × 12) / (Y) × 100
Example (AAPL):
- LEAPS cost: $15
- Average sold call: $0.50/month
- Annualized income: ($0.50 × 12) / $15 = 40%
Step 4: Rank by Annualized % Return
- Higher % = better capital efficiency
- But only if you're comfortable with the stock and IV
DTE Optimization: When to Roll Your Sold Calls
Once you've built your PMCC position, when should you close and sell new calls?
The Rolling Framework for PMCC
Sold Call at 14 DTE:
- If stock up 1-2%, close call and sell next month
- Lock in gain, reset income counter
Sold Call at 7 DTE:
- If still profitable, hold for maximum theta decay
- Collect full premium, let it expire worthless
Sold Call at 3 DTE:
- Decide: Take assignment or roll?
- If stock moved up 5%+, consider taking assignment (clean exit)
- If still in profit zone, roll to next month
Common PMCC Mistakes to Avoid
1. Buying Too Far OTM on LEAPS
- Tempting to buy cheaper LEAPS (delta 30-40)
- But you lose downside protection
- Better: Buy delta 60-75 (in-the-money LEAPS)
2. Selling Calls Too Far OTM
- Sounds safer, but premium disappears
- Sell delta 20-30 (standard income strategy)
- Don't sell delta 10 expecting "more time"—that's not PMCC, that's just cap gains trading
3. Ignoring Dividend Dates
- Dividend declaration can cause early assignment
- Check ex-dividend dates before entering position
- Plan rolls around known dividend dates
4. Position Sizing Too Large
- PMCC is still leveraged (long + short calls)
- Size it like a covered call, not a day trade
- Keep PMCC to 5-10% of portfolio max
5. Holding Through Expiration
- Never let assigned shares surprise you
- Close sold calls by 3 DTE to decide assignment fate
- Manage your position, don't let it manage you
The 3-Step PMCC Setup Using Your Watchlist
Step 1: Select Stock & LEAPS
- Pick from your watchlist (screening results above)
- Buy 12-month LEAPS call at delta 60-70
- Cost: $5-20 per contract (varies by stock)
Step 2: Sell Shorter Call
- Wait 2-3 weeks after entering LEAPS
- Sell 30-45 DTE call at delta 20-25
- Premium: $0.40-0.80 per contract
Step 3: Repeat Monthly
- Month 1: Collect $0.40-0.80, realize 20-25% annualized on LEAPS cost
- Month 2: Roll or close short call, repeat
- Continue until LEAPS expires (typically 6-8 cycles)
Interactive Brokers Integration: Executing Your PMCC
If you're using Interactive Brokers (the best for PMCC):
- Search LEAPS: Enter stock symbol, filter by expiration 9-12 months
- Buy LEAPS call: Delta 60-70, closest strike to current price
- Sell Shorter Call: Same underlying, 30-45 DTE, delta 20-25
- Create Spread Order: Pair legs together for tighter fill
Key tip: Use limit orders, especially on LEAPS. The bid-ask spread is real—don't use market orders.
Next Steps: From Screening to Execution
- Build your watchlist using the top 10 stocks above
- Check LEAPS availability on your broker this week
- Calculate your expected income % for 3 top candidates
- Paper trade 1-2 PMCC positions to get comfortable with the mechanics
- Link to related content:
The beauty of PMCC? You get income generation (like covered calls) with only 20% of the capital required. Using this screening guide, you'll find the stocks where that capital works hardest.