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PMCC Strategy: Long Calls, Short Calls & Risk

A poor man's covered call uses a long-dated call in place of shares and sells shorter-dated calls against it. It is a diagonal position: the two legs expire on different dates, so the payoff is not a simple expiration diagram.

Educational content. Last reviewed October 3, 2026. Not investment advice.

Structure

You buy a long-dated call, often deep in the money, and sell a nearer-dated call at a higher strike. If the stock rises through the short strike, the short call loses money while the long call gains.

Worked example

Stock $100. Buy the one-year $70 call at $31.80 and sell the 13-day $105 call at $1.10.

Debit = ($31.80 - $1.10) x 100 = $3,070
Long-call intrinsic value = $100 - $70 = $30.00
Long-call extrinsic value = $31.80 - $30.00 = $1.80
Strike width = ($105 - $70) x 100 = $3,500
ItemValue
Capital compared with 100 shares$3,070 vs $10,000 (about 31%)
Initial debit at riskThe entire debit can be lost. Assignment and leg handling can create additional cash and margin obligations.
Maximum profitNot fixed. Depends on remaining long-call value

Why the payoff is modeled

When the short call expires, the long call still has time left, and its value depends on the stock price, volatility and time. TradingSignalAI approximates that value with a Black-Scholes model that holds implied volatility constant, assumes zero interest and dividends, and falls back to intrinsic value if volatility is unavailable. It is an illustration, not a prediction.

Assignment and extrinsic value

If the short call is assigned, exercising the long call to deliver shares gives up its extrinsic value. Selling the long call instead may be possible but requires closing both legs. Future short-call income is not guaranteed.

Sizing and managing the diagonal

One standard long call and one standard short call have the same 100-share multiplier, but different expirations and time values. Confirm both contracts' deliverables; adjusted options can invalidate that simple comparison. A long call is not interchangeable with owning shares, particularly when assignment creates a share-delivery obligation.

A short-call assignment may leave short stock until the position is resolved. Closing the short stock, selling the long call or exercising it have different costs and financing implications. Exercising can destroy remaining time value. Discuss your broker's assignment handling and margin requirements before using the structure.

Why future credits cannot be added in advance

A plan to sell several weekly calls is a sequence of future decisions, not a set of cash flows known today. The stock might fall, volatility might decline, or the long call's delta might change. A later short call with an acceptable strike may offer little premium or poor liquidity.

Evaluate the debit and current short-call credit first. Treat possible later credits as uncertain scenarios and consider the effect of closing costs. The displayed long-call model holds volatility constant; actual long-call marks can change even when the stock finishes at the same price.

The structure, drawn

PMCC

A long-dated call stands in for shares and a nearer call is sold against it. Two expirations, so the curve is modeled.

Illustrative example
  • Buy
    $70 call, Oct 2027
  • Sell
    $105 call, Oct 2026

Profit zoneLoss zoneStock priceBreakeven

Example stock
$100.00
Net entry debit
$3,071.30 including entry fees
Breakeven (modeled)
$99.22
Max profit
Not fixed
Max loss
Not fixed
Evaluated at
Short expiry

Different expirations: the long call remains open until 2027-10-15. This is not a fixed expiration payoff or a guaranteed outcome.

PMCC: two contracts, two expirations

Hypothetical example. Not a quote or a result. Evaluated at short-call expiration. The long call still has time value then, so this is a modeled scenario, not a fixed cap or guaranteed result.

Illustrative example

Buy
Long-dated deep in-the-money call

Strike
$70
Expiration
2027-10-15
IV (stated model input)
30%
Delta
Not an input here
Capital required
$3,071.30 net debit

Sell
Short-dated out-of-the-money call

Strike
$105
Expiration
2026-10-16
Premium
Reduces the net debit
Stock reference
$100.00

Long-call delta and IV on a real signal come from the quotes shown at the time. Here, only the 30% IV is a stated input to the model, with 0% interest and dividends, unchanged volatility, and no delta inference. The short call is the only leg that expires first.

  1. Below the short strike

    Stock $99.75

    $48.26 P/L

    The short call expires unused. The long call keeps its value, and the net debit is still at risk.

  2. At the short strike

    Stock $105.00

    $532.16 P/L

    Short call has no intrinsic value. The long call is modeled with remaining time value.

  3. Above the short strike

    Stock $110.25

    $502.42 P/L

    The short call costs you above $105, offset by the long call's gain. Not a fixed cap.

Risks

  • The long call can lose most or all of its value.
  • Early assignment can force costly decisions.
  • Dividends and volatility changes affect the model.
  • No fixed profit cap exists to rely on.

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