Poor Man's Covered Call Explained - Full Example

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Check out my entire playlist on Trading Options here: https://www.youtube.com/playlist?list=PLscTZuOqKWIxSZzy4ObKWDznEsCot_1HU 💯 LET’S CONNECT 💯 📷 Instagram @JakeBroe 👉 https://www.instagram.com/jakebroe/ 🐦 Twitter @Broe_Jake 👉 https://twitter.com/broe_jake 👇 👇 Watch My Other Videos Here 👇 👇 ★ How to Sell Covered Calls - Options Trading Explained https://youtu.be/FS-pzG_Oyto ★ LEAPS Options Explained - How to DOUBLE Your Stock Returns https://youtu.be/3rdqL4hQCyM ★ The Greeks Explained - How to Trade Options https://youtu.be/3C-NQadRRfo 📷 📷 My YouTube Equipment 📷 📷 ► My Camera 👉 https://amzn.to/2UZpFwA ► My Wide-Angle Lens 👉 https://amzn.to/2Qwf3Sq ► My Wireless Microphone 👉 https://amzn.to/2QBV9W0 ► My Shotgun Microphone 👉 https://amzn.to/36bdLTv ► My Lighting 👉 https://amzn.to/2F5Ey7V ► My Light Diffusers 👉 https://amzn.to/2tjF8fG What flag is that? 👉 https://amzn.to/357sptp What is your background? 👉 https://amzn.to/2BCHRp1 ================ 📚 📚 Books That Changed My Life 📚 📚 📗 How to Win Friends & Influence People 👉 https://amzn.to/2F3ahGC 📕 Dumbing Us Down 👉 https://amzn.to/2spodrZ 📘 Quiet - The Power of Introverts 👉 https://amzn.to/36b2ti3 📙 The Red Queen 👉 https://amzn.to/2QzNW8W 📔 Rich Dad Poor Dad 👉 https://amzn.to/3bliFyP 📒 Why Nations Fail 👉 https://amzn.to/3fWZ3Em ================ Poor Man Covered Call A "Poor Man’s Covered Call" is a Long Call Diagonal Debit Spread that is used to replicate a Covered Call position. The strategy gets its name from the reduced risk and capital requirement relative to a standard covered call. Directional Assumption: Bullish Setup: - Buy an in-the-money (ITM) call option in a longer-term expiration cycle - Sell an out-of-the-money (OTM) call option in a near-term expiration cycle The trade will be entered for a debit. It’s important that the debit paid is no more than 75% of the width of the strikes. Example: Stock at $100 Purchase (Expiration 2) 90 call for $15 Sell (Expiration 1) 110 call for $5 Net debit = $10.00 on a 20-point-wide long call diagonal spread Ideal Implied Volatility Environment: Low Max Profit: The exact maximum profit potential cannot be calculated due to the differing expiration cycles used. However, the profit potential can be estimated with the following formula: Width of call strikes - net debit paid How to Calculate Breakeven(s): The exact break-even cannot be calculated due to the differing expiration cycles used in the trade. As a rough estimate, the break-even area can be approximated with the following formula: Long call strike price + net debit paid Trade approach: A Poor Man’s Covered Call is a fantastic alternative to trading a covered call. In smaller accounts, this position can be used to replicate a covered call position with much less capital and much less risk than an actual covered call. The setup of a poor man’s covered call is very important. If we have a bad setup, we can actually set ourselves up to lose money if the trade moves in our direction too fast. To ensure we have a good setup, we check the extrinsic value of our longer dated ITM option. Once we figure that value, we ensure that the near term option we sell is equal to or greater than that amount. The deeper ITM our long option is, the easier this setup is to obtain. We also ensure that the total debit paid is not more than 75% of the width of the strikes. We never route poor man’s covered calls in volatility instruments. Each expiration acts as its own underlying, so our max loss is not defined. ================ 📧 E-mail me at: JakeBroeYT [at] gmail [dot] com Official business inquiries can be sent here. Personal e-mails will be discarded. ================ #TradingOptions #PoorMansCoveredCalls #PMCC ================ DISCLAIMER: This video is for entertainment purposes only. I am not a legal or financial expert or have any authority to give legal or financial advice. While all the information in this video is believed to be accurate at the time of its recording, realize this channel and its author makes no express warranty as to the completeness or accuracy, nor can it accept responsibility for errors appearing in this video. ADVERTISER DISCLOSURE: Jake is a participant in the Amazon Services LLC Associates Program, an affiliate advertising program designed to provide a means for sites to earn advertising fees by advertising and linking to www.amazon.com. Additionally, other referral links are included and this channel does receive compensation for sending traffic to partner sites. Shopping through our links is an easy way to support the channel and we appreciate and are super grateful for your support!