Diagonal Bull Call Spread (Poor Man’s Covered Call)

A Diagonal Bull Call Spread buys a longer-dated call and sells a shorter-dated call at a higher strike. When the long option is well in the money and serves as a stock substitute, this is commonly called a Poor Man’s Covered Call. It is a variation of the same diagonal structure, so both are covered in this guide.

Names and related structures: Poor Man’s Covered Call; Poor Man’s Covered Call; PMCC; long call diagonal.

Market Outlook

The trader expects a gradual rise. The long call provides bullish exposure, while selling a nearer-dated higher-strike call offsets some entry cost but gives up part of the benefit from an immediate sharp rally.

Position Construction

Buy one 180-day $90 call and sell one 30-day $105 call. Use the same underlying and matching 100-share contracts. A deeper in-the-money long option is the stock-substitute version; an ordinary diagonal need not use such a deep strike.

Hypothetical entry premiums per share
Action	Option	Expiration	Premium
Buy 1	$90 call	180 days	$13
Sell 1	$105 call	30 days	$2

Example

With XYZ at $100, pay $13 for the long option and receive $2 for the short option. The net debit is $1,100. At the short expiration, suppose XYZ is $105 and the long option can be sold for $17. The short has zero intrinsic value, so closing the position earns $600. If the long instead sells for $14 at that same stock price, profit is only $300. Its remaining time value makes the difference.

All amounts use a 100-unit contract multiplier and exclude commissions and fees. These prices illustrate the arithmetic; they are not current market quotes.

Value at the First Expiration

Diagonal Bull Call Spread (Poor Man’s Covered Call) estimated profit and loss at the first expiration — Estimated profit or loss at the first expiration (day 30). Remaining options have 150 days left and use a European Black–Scholes model with 30% IV, 0% interest and no dividends. Includes entry premiums; excludes fees and assignment cashflows. The calculator starts with these same assumptions.

Underlying price	Modeled P/L at day 30
$80	−$830.95
$90	−$410.55
$95	−$113.67
$100	$233.86
$105	$623.51
$110	$546.24
$120	$458.93

Maximum Profit

There is no fixed maximum dollar profit at the short expiration without assumptions about the remaining option value. Do not subtract the debit from the strike difference and treat that as the final answer for a diagonal. If the short expires and further options are sold, every new premium and close-out cost belongs in the total result; future sales are not guaranteed.

Maximum Loss

The original $1,100 debit can be lost if the short expires worthless and the long ultimately expires worthless. Under the zero-rate European model below, closing both options together at the first expiration gives a theoretical loss no greater than the debit. That bound does not cover every later sequence of assignments, stock transactions and new short sales.

Breakeven Point(s)

At the first expiration, solve long option market value minus short option intrinsic value = $11 per share. There is no fixed breakeven from the entry debit alone. Time remaining and implied volatility affect the answer, and the breakeven changes if the trader keeps or rolls either leg.

How it differs from a Covered Call

A Covered Call owns shares and sells a call against them. Here, a long call replaces the shares, expires on a specified date and may lose its entire value. It does not pay dividends or provide voting rights. “Covered” in the nickname does not mean that shares are already available for delivery.

Risks and Position Management

The short option can be assigned while the long option is still open. A short call assignment can leave short shares, with borrow costs and possible dividend obligations. Selling the long option to fund a stock close-out may preserve time value that exercising it would forfeit. Verify broker treatment, particularly around dividends and expiration. Rolling adds risk and costs rather than repairing the original trade automatically.

Before expiration, option prices also reflect time remaining and volatility. The chart depends on its model assumptions. Trading costs reduce profits and increase losses. Review the contract’s exercise and settlement rules before trading.

Explore the Position

Try the Diagonal Bull Call Spread Calculator

Compare This Strategy

Optional further reading to help you compare the tradeoffs.

Covered Call vs Poor Man’s Covered Call — Compare ownership and funding needs before comparing premium income.
Calendar Spread vs Diagonal Spread — Keeping the strikes together concentrates the example around a shared price target.
ZEBRA vs Long Call vs Poor Man’s Covered Call — Compare initial debit, sensitivity to the stock, the price target and the need to manage a short option.

Structure reference: Strategy reference. Example premiums and calculations are illustrative. Editorial standards.