35 NOK LEAPs, cost $7,822.50. On top, 35 short calls that brought in $1,638.50.
Coverage ratio 43%. The LEAP is down −$3,832.50.
If that LEAP goes to zero, I lose the $3,990 it is worth today — 62.7% of my net worth. This is not a “poor man’s covered call.” It is leverage with a lease.
1. What I Used to Believe
The popular pitch for a PMCC: buy a deep in-the-money LEAP instead of 100 shares, then sell short calls against it — “a third of the capital for the same rent.”
Every word is true, and it hides one omission: if the stock goes to zero you still own 100 shares and can wait. If the LEAP goes to zero you own nothing.
Stocks rarely go to zero. Options expire. Same direction, different instrument, worst case an order of magnitude apart.
2. The Structure: Both Legs Are Options
A PMCC has two legs:
- Long leg: a long-dated, deep in-the-money call (the LEAP), standing in for the shares.
- Short leg: a short-dated, out-of-the-money call written against it.
The difference from a covered call is not the strategy, it is the collateral: a CC is secured by shares, a PMCC by a LEAP. So the premium is not “extra income” — it is recovery of the LEAP’s time decay.
That defines the scorecard: not how much rent you collected, but coverage ratio = short-leg premium ÷ long-leg time decay.
3. Three Ledgers: Cost, Rent, Coverage
My 35 NOK contracts (from position snapshots, not estimates):
| Item | Value |
|---|---|
| Long: JUN 2027 10C × 35 at $2.235 | $7,822.50 |
| Short: MAR 2027 12C × 35, gross premium | $1,638.50 ($0.503×25 + $0.381×10) |
| Long-leg unrealized | −$3,832.50 (remaining value $3,990) |
| Coverage ratio | 43% |
The third ledger is the one people skip. 43% means the rent recovered less than half of the LEAP’s loss. The other 57% has to come from NOK going up, or from time grinding on.
If your short calls only cover 43%, you are not collecting rent on an asset — you are buying a leveraged lottery ticket in installments.
4. The Worst Case Is a Zeroed LEAP, Not “Shares I Still Own”
This is the fundamental split between PMCC and CC, and the most mis-computed number in the strategy:
- CC worst case: stock to zero, losing the share value (usually a tenth or two of net worth).
- PMCC worst case: LEAP to zero, losing the entire premium (potentially more than half of net worth).
My position: LEAP value $3,990, or 62.7% of net worth. A zero is more than a halving. And a zero is not fantasy for a 2027 out-of-the-money LEAP — a 40% drop in the underlying leaves it with time value and little else.
So the first rule of a PMCC is not stock selection; it is size: the worst-case loss (the long-leg cost) must fit your per-trade limit. Mine is 20% of net worth. This 35-lot blew through it — it was built in three adds, and I never recomputed total exposure. That is the lesson.
5. Short-Leg Size: The Cost of 35/35
The default that looks safest is matching contracts: one short call per LEAP, “fully covered.”
Full coverage maximizes rent and caps your upside completely. Once the stock clears the short strike you face two actions at once: buy back expensive calls, or watch the LEAP’s gains get eaten.
The subtler cost is liquidity: two different contracts, both legs must be handled together. To trim, you must first buy back 35 short calls — usually the less liquid leg.
What I do now: short legs cover at most 70–80% of the LEAPs. The remaining 20–30% stays unsold, so a rally still pays something and I keep room to maneuver.
6. Four Parameters
① LEAP expiry: 12–24 months. Shorter and time decay outruns your rent; longer and cash is locked with worse liquidity. 12–24 months covers at least one full volatility cycle.
② LEAP strike: deep in the money (delta 0.7–0.85). Deep ITM is what makes the LEAP behave like stock (high delta, low time-value share). An out-of-the-money LEAP is not a PMCC; it is a lottery ticket.
③ Short strike: out of the money and above your cost basis. Assignment means selling the upside the LEAP represents. Below cost, you are promising to sell at a loss.
④ Short DTE: around 30 days. As with a CC, time is the only reliable source of seller income; too long and one gap eats months of rent.
Of the four, only the third is a hard constraint: the short strike must sit above your effective cost, or the structure is working for a loss from day one.
7. Assignment Day: the LEAP Does Not Deliver
This is the famous PMCC misunderstanding, and I wrote a separate piece on it: when the short call is assigned, the broker does not hand over your LEAP — you need 100 actual shares, or the cash to buy them. Without either, you are short stock.
So a PMCC needs an assignment script before you open: buy back the short leg, prepare the cash, or close the whole structure. No script means an accident on the day (the PMCC assignment myth).
8. Three Ways This Actually Loses Money
One: the stock goes sideways and the LEAP bleeds. The PMCC’s enemy is not a decline, it is “nothing happens.” Short calls cover 43%; the other 57% of time decay needs the underlying to rise. Flat means chronic blood loss.
Two: a 30–40% drop turns the LEAP into a lottery ticket. Delta falls from 0.8 toward 0.4 and leverage works against you; the short calls get cheap, and you end up collecting rent on a nearly worthless contract.
Three: short assignment with no preparation. Full coverage + deep ITM + expiry approaching = short stock risk. That is not a loss, it is an account incident.
9. When This Framework Doesn’t Apply
- The LEAP is deep ITM and the underlying is genuinely stable. Then a PMCC really is close to “cheap stock plus rent,” and the worst case is less brutal — but “genuinely stable” is an assumption, not a fact.
- You run portfolio margin with hedges. Multi-leg risk isn’t additive, but correlations go to 1 in a crisis; don’t treat portfolio margin as a cushion.
- You use a PMCC as a short-term directional bet. Different game; none of the discipline here (coverage, full coverage, scripts) applies.
10. Seven Questions Before You Open
- What percentage of net worth is the long-leg cost? (>20% → fewer contracts.)
- Does short premium ÷ long-leg time decay clear 50%?
- Is the LEAP deep in the money? What is its delta?
- Is the short strike above my effective cost?
- Do short contracts exceed 70–80% of the LEAPs?
- What do I use to take delivery if assigned?
- If the stock is flat for six months, does this position survive?
11. One Line
The rent on a PMCC is a lease payment, not a return; the worst case is a LEAP that becomes a worthless piece of paper.
Price the paper first. Then talk about monthly rent.
Related: The PMCC assignment myth · PMCC quick guide · Margin is not your money
Data & Sources
- Updated 2026-11-13 | First published 2026-11-13
- NOK: 35 JUN 2027 10C at $2.235, 35 MAR 2027 12C ($0.503×25, $0.381×10), from Premium Is Not Income (in Chinese) and the NOK 12C add
- Account reference: TWS snapshot 2026-10-27 (net worth $6,357.77, maintenance margin 49.4%, leverage 1.31x)
- Coverage = short-leg gross premium ÷ long-leg unrealized loss, same name, same timestamp
- 62.7% = LEAP value $3,990 ÷ net worth $6,357.77, arithmetic only, not a forecast
Risk Boundaries
Structure and parameters only; not investment advice, no return promised. A PMCC’s long leg can lose its entire premium, and leverage amplifies both directions; assignment without shares or cash creates a short position. A structure can tell you your worst case; it cannot pay it for you.