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A lower-cost alternative to generate income on Nike: the poor man’s covered call
A lower-cost alternative to generate income on Nike: the poor man’s covered call
In our last article, we explored how investors can generate income on Nike shares by selling a call option against their existing position—a strategy known as a covered call. But what if you don’t own 100 shares? Or what if you do, but prefer not to tie up that much capital?
This is where options truly shine. They allow you to design strategies that match your goals, capital, and comfort with risk. One of the most practical examples of this flexibility is the poor man’s covered call (PMCC). It replicates the key features of a covered call—generating income while keeping exposure to the stock—but does so at a fraction of the cost.
Important note: The strategies and examples described are purely for educational purposes. They assist in shaping your thought process and should not be replicated or implemented without careful consideration. Every investor must conduct their own due diligence, considering their financial situation, risk tolerance, and investment objectives before making decisions. Remember, investing in the stock market carries risks, so make informed decisions.
Let’s walk through exactly how it works using Nike (NKE:xnys) as our example.
How the PMCC works
At its core, the poor man’s covered call consists of two option legs:
Buy a long-term, deep-in-the-money call option. This acts like a substitute for owning the stock. Since it’s deep in-the-money and has a long time until expiration, it behaves similarly to the stock itself—but it’s cheaper.
Sell a shorter-term, out-of-the-money call option. This generates income, just like in a traditional covered call.
The result is a position that costs much less than buying 100 shares, while still offering the potential to earn income. If the stock stays below the short call’s strike, you keep the premium and your longer-dated call remains intact.
A real example with Nike
Nike shares are trading around $75.35. To build the PMCC, we select:
- Long call: January 16, 2026 $65 call, priced around $13.60
- Short call: October 3, 2025 $83 call, priced around $1.35
Your total cost for this position (called the net debit) is about $1,224.50.
Here’s what that gives you:
- Exposure to Nike similar to owning shares (via the long call)
- Income from the short call (you collect the $1.35 premium)
- Maximum profit this cycle: around $722.75 if Nike finishes above $83
- Breakeven point: around $74.71 at October expiration
What your profit/loss profile looks like
The PMCC produces a familiar shape if you’ve used covered calls: a steady rise in profits until you hit the short call strike ($83), after which your gains are capped.
The twist? Your capital requirement is much lower because you’re not buying 100 shares outright. And when the short call expires, you can sell another one—repeating the income-generating cycle.
Covered call vs. poor man’s covered call
Let’s compare the two setups side by side:
| Feature | Covered call (100 shares) | Poor man’s covered call |
|---|---|---|
| Capital required | ~$7,473 | ~$1,224.50 |
| Max profit (if called) | ~$945.75 | ~$722.75 |
| Breakeven | ~$73.54 | ~$74.71 |
| Eligible for dividends? | Yes | No |
| Sensitivity to volatility | Low | Medium (vega exposure) |
| Can repeat short calls? | Yes | Yes |
So which one should you use?
- Use the covered call if you already own Nike shares and want to generate income conservatively.
- Use the PMCC if you don’t own 100 shares or want to use your capital more efficiently. It gives you flexibility but introduces some extra complexity.
- Or use both: you could pair your shareholding with a long call and write two short calls across the positions—just make sure you’re never exposed to “naked” short calls.
How to manage the trade
As with all options strategies, some attention is needed once the trade is live:
- If Nike climbs toward $82–83 before expiration, consider rolling the short call to a later date or higher strike.
- If the stock stays flat, let time decay (also called theta) work in your favor as the short call loses value.
- If the stock drops, your long call will lose some value—but the short call will help offset the damage.
After earnings or any big event, the implied volatility (expectations of how much a stock might move) tends to fall. That can lower the value of your long call—a factor known as vega risk. More on that below.
Risks to consider
No strategy is perfect. Here are some of the key risks and considerations with a poor man’s covered call:
- Capped upside: Your profit is limited to the difference between the strike prices, minus the cost of the trade.
- Vega sensitivity: The long call may lose value if volatility falls. This is called vega—a measure of how much the option’s price moves when implied volatility changes. After earnings, vega often works against you.
- Time decay (theta): Your long call also loses value over time, especially as it gets closer to expiration. That’s why you choose long-dated options—to reduce this decay.
- Early assignment risk: If your short call is in-the-money and a dividend is coming up, there’s a chance it gets exercised early. Since you don’t own the stock, you’ll need to close or roll the short call to avoid issues.
- Wider bid/ask spreads: Longer-term options can be less liquid. Always check the spread before placing a trade.
The PMCC can be a smart way to put your capital to work, but only if you understand how each leg behaves. Planning and monitoring are essential.
A quick checklist for beginners
Want to try it yourself? Here’s how to get started:
- Buy a deep-in-the-money call that expires 6–18 months from now
- Choose a delta of around 0.75 to 0.85 (meaning it moves like 75–85% of the stock)
- Sell a short-term out-of-the-money call with delta ~0.20–0.30
- Keep the long call’s extrinsic value (time value) low—this helps it act more like stock
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This material is marketing content and should not be regarded as investment advice. Trading financial instruments carries risks and historic performance is not a guarantee of future results.
The instrument(s) referenced in this content may be issued by a partner, from whom Saxo receives promotional fees, payment or retrocessions. While Saxo may receive compensation from these partnerships, all content is created with the aim of providing clients with valuable information and options..
The instrument(s) referenced in this content may be issued by a partner, from whom Saxo receives promotional fees, payment or retrocessions. While Saxo may receive compensation from these partnerships, all content is created with the aim of providing clients with valuable information and options..