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The poor man’s covered call (PMCC) has a lot of flexibility when it comes to trade management. In this video we will explore how to manage a poor man’s covered call in three different scenarios.
1) The stock price is approaching your short call, where you can roll up and out for a credit, extending your upside on the trade but reducing your P/L potential if the stock trades back down.
2) The stock price has already ripped through your short call strike price. In this scenario you have less flexibility when rolling because your ITM short call is expensive due to having lots of intrinsic value. You’re forced to roll further out in time to get your short call strike OTM. The furthest you can roll is to the expiration cycle of your long call LEAPS position, creating a bull call spread in that cycle.
3) The stock price has collapsed and your entire PMCC is a losing position. You can roll down the short call strike to collect credit, but you want to be careful about rolling down into a stock price rally. You can also completely restructure the PMCC by closing the existing one and opening a new one at lower strikes, potentially a more near-term expiration for the long call if you want to lower the strike.
==== Video Chapters ====
00:00 Scenario #1: Stock Approaching Short Call
04:15 The Downside of Rolling Up and Out
05:45 Scenario #2: Managing an ITM Short Call
07:56 Scenario #3: Stock Price Falls – Losing PMCC
10:59 Make Better Trades – Model Your Trades & Adjustments
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