PMCC, which stands for Poor Man’s Covered Call, is a specific options trading strategy designed to simulate the risk-reward profile of a traditional covered call but with significantly less capital expenditure. It involves buying a deep in-the-money (ITM) long-term call option and simultaneously selling a shorter-term, out-of-the-money (OTM) call option against it.
Mechanism
The mechanism relies on purchasing a long-dated call option as a synthetic substitute for owning 100 shares of the underlying asset, thereby reducing the initial capital outlay compared to buying the shares outright. The short-term call option sold against this long position generates premium income, offsetting some of the cost and limiting potential upside, mirroring a covered call’s income generation.
Methodology
The strategic objective of a PMCC is to generate income and achieve capital appreciation with a lower initial investment, offering a capital-efficient alternative for bullish investors seeking to mitigate some downside risk. This strategy is particularly relevant in institutional options trading for managing directional bets on assets, including cryptocurrencies, by leveraging option Greeks and time decay for portfolio optimization.
We use cookies to personalize content and marketing, and to analyze our traffic. This helps us maintain the quality of our free resources. manage your preferences below.
Detailed Cookie Preferences
This helps support our free resources through personalized marketing efforts and promotions.
Analytics cookies help us understand how visitors interact with our website, improving user experience and website performance.
Personalization cookies enable us to customize the content and features of our site based on your interactions, offering a more tailored experience.
