Don’t Get Screwed Trading The Poor Man’s Covered Call!

Thank you very much for explaining all the scenarios. Really helpful,

I have twice been assigned early! Both times on Thursdays

i've been wondering this for months. Thank you!

If I own both leaps and stock and the covered call I sold gets exercised, will the brokerage take the stocks first?

This is great! I usually go by the delta’s and probability of profit when doing PMCC but I love the formula you described here

if you see the underlying price getting close to your short call position then just closed it or roll it. why let it get assigned? am i missing something here?

Well explained Brad. Thanks!

Really good explanation.

Damn this video was so good it made my mouth water.

So what he’s saying is… if you don’t have the cash to cover the 100 shares, you’re fckd.

No options for me

I still don’t understand where the money would come from to buy the 100 shares. Even if you sold your leap option, that wouldn’t be nearly enough to cover 100 shares

Great video!! You are always so great with explaining!!

Hard to follow visual examples and simpler explanations would be nice

My experiment with TD Ameritrade is they will not touch the leaps call option. If you sold a call at strike $100 and got exercised. Your account will have extra $10000 though the sale of the 100 shares. Also you account will have -100 shares of the company that you sold call against. What you need to do is to buy back 100 shares of that company in the open market. Eg if the price is $105. You need to spend $10500 to buy back that 100 shares leaving a -$500 loss - premium collected when selling the call.

Has anyone experienced Robinhoods option sellout process?

I wonder how many people were exercised on GME this week....on PMCCs

I’ve never been exercised on a diagonal or calendar spread early but I have on a vertical spread. It was on spy with Td ameritrade on the dividend day. They exercised the short calls and left me short like 1000 shares. I was lucky because the market tanked that morning so I was able to cover the short and then I still had the long calls which went up later that day. All in all it turned out to be a +5k day on a fluke. But I wouldn’t trade any spreads around dividends again cause I will most likely not get that lucky again.

I would advise checking with the broker. If you're trading in a margin account, you'll get assigned the shares short and keep the LEAPS / long call, thereby turning it into a protective call. If it's in a cash account or IRA, I'm not sure what would happen if it were normal expiry, since you can't short in those accounts. I did have an early assignment once on a spread in my IRA and was assigned the shares short, but my understanding is that such a position has to be closed the same trading day.

So lets say I buy a call option that expires three months from now and then I decide the premium on that call option I just bought increases. If I turn around and sell that option for the asking price and close it is there any point in that timeline where I can get assigned? My brokerage shows that the maximum potential loss I can experience from this strategy is just the cost of the premium, i.e. it expires worthless. This is what I've been doing for a while and haven't had any issues with getting assigned but maybe I'm just getting lucky?

Do you know if Ameritrade auto exercise my leaps to fulfill the -100 shares sold from my short call exercising ITM?

So....I messed up and let my short call expire ITM friday. But I don't have the money to buy 100 shares of SPY.

Currently, so far in the TOS app, Saturday midnight, it shows -100 shares , and the short call is now a 0.
But my Leaps is still there. And it is ITM.

Looks like they didn't exercise my Leaps to cover the -100.

Oh and now I have a margin call.

Yikes!

if short call is in the money it's it a good idea to roll over that short call for higher strike price?

TD will not automatically exercise the long call, you will get an opportunity to buy to cover. Note that in a margin call you may not be allowed to buy or sell other positions , you need to have enough cash to add to what you receive from the buyer exercising the short call. After you buy to cover you can immediately sell another short call. Essentially you are rolling the short call without having to pay any extrinsic value. Because of this you can take your time rolling the short call up and out, it’s ok if it’s in the money, again make sure you have enough cash to cover what you need.

Great explanation! Thank you for making this easy to understand. I loved the explanation of how not to lose (difference in strike prices times 100 should be greater than premium paid).

What is the strategy or hedge when a stock price is down huge? For example, Amazon went down from over 150 to 90 in 2022. It would give a lot of loss on deep in the money long call.

Brad you sound like an east coast guy! You have a bit of an east coast accent. Where you from brother? I’m from the west coast. Thanks for sharing your options trading knowledge bud.

Hey Brad, great content as always. I was wondering if you or someone could help shed some light on a scenario so I can understand this better.

I'm starting to paper trade the PMCC on SPY. 4/24 This morning when SPY was trading around $411, I "bought" a 8/18 $400 strike call for $2,687 to act as my LEAPS.
I then 'sold' the 5/5 $414 call for $372. So say I don't roll my short leg and it expires next Friday 5/5 ITM, will my P/L look like the following?
Broker exercises my long leg at a $40,000 debit, sells them to cover the assigned short leg as a $41,400 credit, leaving $1,400, + the premium from the short call, $372 = $1,772.
BUT I paid $2,687 for the leap, so its an actual loss of $915, right?
Does that just mean until I can collect enough credit to offset the extrinsic value premium of my LEAPS (that $915?), I need to write the short calls above that threshold ?

Hi Brad, thank you for your videos. I found you when looking for info on PMCC. I think that your content on this is among the best of what is available (considering as some content providers don't even know the difference between PMCC and Synthetic CC). Would love to see you do more videos on PMCC, and would be great if you could include any advanced information, as it is very difficult to find anything beyond the very basic. I've had a good experience with this so far in a smallish account, netting a 14% return in the last 11 weeks. Though this isn't completely accurate, since the return calculation is complicated by the fact that I have reinvested premium received into, and added additional funds into more long calls.

I got assigned on my short call and essentially was put into a regular short position on 100 shares. My leaps option did not get automatically exercised like I thought it would and expected. My brokerage charged me a very high borrow rate on the short position until I bought to close it. In the end I owed like $15 in interest for holding it short over the weekend. I plan to just purchase a 100 shares of the assigned shares immediately in after hours trading or right at the expiration. If I need funds I’ll sell the Leaps options the following Monday.

Absolutely amazing explaining wow I understood on one watch

Thanks, Brad! I love how you explain things - calm, methodical, thorough. Very much appreciated!!

So basically, if you see that the short call (example expired next week) might be in the money you should buy it back to prvent your brockrage from excercising your call... even if its in a small lost, just dont let the stock go above the strike price and If it gets very close to the strike price buy it back...? example: if call strike is 100 and there are 3 days to go and the stock price is 97 and stock market is bullish buy your call back?

formula for P/L (I have it in excel): (Short call strike price - leap option strike price) x number of options x 100) + premium received from short call - premium paid for leap.

I was assigned 26 day early on my QQQ short leg (PMCC). My put price was 10% higher...so I was confused why I was assigned so early. I just now figured out my issue. I mistakening enter PUT on the short leg. Ugh. Lesson learned don't use phone app to enter PMCC orders. So instead of 2 call orders, I entered 1 call/1put thinking I created a PMCC. I guess I'lll hold onto the shares, sell calls and enter a new CALL short leg. Options learning is fun 🙄😬🥵

PMCC is the slang like you mentioned I believe the term is Vertical Spread. May help people search it up in their brokerage

Thank you for the video! One question - how the broker will execute a LEAPS option, if I don't have enough money on my account? Will it be credited from my margin account? or what? Thank you!

How do we join your discord? Thanks.

So basically last resort option, sell to close for $0, the whole call is a wash and a waist of ur dam time 😂

What if you cannot afford or buy the 100 shares?? Will you then owe your broker? get charged interest? I think this video covers the best case scenario.

Because I assume people are using the poor man's covered call because they precisely cannot afford to buy 100 shares of the underlying. I may be missing something though within the explanation given. Based on the explanation given it seems like the worst case scenario is that you lose the value on your LEAPS option which sure might be 3000% but it's FAR BETTER than owing your broker 40k or more lol.

I'm sick of watching pmcc videos that ignore extrinsic and gamma. Hoping i find the answer here...

Happened to me...twice. Some moron exercised the call they bought (my short) and my broker raided my margin to pay it. Got a margin call both times. Gave me three days to come up with the cash or they would liquidate other assets.

I disagree, the goal is to sell time short and expensive, and buy it long and cheap. You should never allow a.short to expire.

Remember though when you buy the shares you have the monies from the short call. The exercise means that someone just gave you strike price times 100 into your account. That money can be used to buy the 100 shares to close the exercised position.

Thank you for your detailed explanation!

I have a brokerage account at Charles Schwab. I just called them and talked to one of their level 3 trader. He said if I really get early assignment, I will have choices to do what is the best for me. I can even call in and discuss with them and they will help and give input about what is the best choice for me. What is your experience with Charles Schwab?