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What is the strategy in which you buy in-the-money LEAPS and keep selling short-term out-of-the-money calls?

Last Updated: October 1, 2020

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What is the strategy in which you buy in-the-money LEAPS and keep selling short-term out-of-the-money calls?

Good question.

It's called a long call diagonal debit spreadI also believe that TastyTrade coined the term 'poor man’s covered call'.

The second name really gets at the heart of what this strategy tries to achieve. By using an in the money LEAPS call you get a very high Delta which simulates the stock with a reduced capital outlay.

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Options Trading Tip

You will also fight decay on the LEAPS covering the short call you are selling. This is the trade-off for the reduced debit cost among other considerations like if the stock drops to the long call price or goes below you will see higher losses than in the covered call position.

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