A poor man’s covered call is like a regular covered call but requires only a fraction of the capital. It’s like taking a leveraged position, so the returns in percentage terms will be amplified both on the upside and downside.

CVS is a stock that has beaten down recently, but the $52 level seems to be holding as a floor for now. There is also some positive divergence starting to emerge on the chart.


Let’s take a look at how a poor man’s covered call might look on this stock

Trade Date: Apr 23rd, 2019

CVS Price: $52.93

Trade Details:

Buy 1 January 15th, 2021 $40 Call @ $15.48
Sell 1 June 21st, 2019 $55 Call @ $1.76

Total Paid: $1,372

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Below, you can see the trade has the potential to make about $200 which would represent a 14.57% return on capital at risk. There is also a 2.5% margin for error on the downside.

Poor man’s covered calls are one of my favorite trading strategies. Traders can achieve excellent returns, but they need to be aware that percentage losses on the downside are magnified as well.

If you want to check out a detailed example of a poor man’s covered call that played out over the course of a year, you can do so here.

Trade safe!

Disclaimer: The information above is for educational purposes only and should not be treated as investment advice. The strategy presented would not be suitable for investors who are not familiar with exchange traded options. Any readers interested in this strategy should do their own research and seek advice from a licensed financial adviser.

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