Introduction
The Poor Man’s Covered Call (PMCC) is an excellent alternative to a traditional covered call strategy, allowing traders to generate consistent income while utilizing less capital. This strategy is particularly attractive for ETFs like $IBIT (iShares Bitcoin Trust ETF), where buying shares outright can be expensive. Instead of purchasing 100 shares of IBIT outright, traders can buy a deep in-the-money (ITM) LEAP call option and sell shorter-term calls (typically 45 days to expiration) against it.
With IBIT currently trading at $47.90, let’s explore how this strategy can be structured, how it profits in a sideways or bullish market, and how to optimize it for maximum returns.
Constructing the Poor Man’s Covered Call on IBIT
The PMCC consists of:
Long LEAP Call: Buy the furthest-out available LEAP call option (typically with 1+ years to expiration). This acts as a substitute for owning IBIT shares.
Short 45-Day Call: Sell a shorter-term call (about 45 days to expiration) at or slightly out of the money, collecting premium and reducing cost basis.
Choosing the Right Strike Prices
Long LEAP: Ideally, select a deep ITM call with a delta of 0.80 or higher (meaning the option moves closely with the stock price). This ensures strong participation in IBIT’s movement.
Example: If IBIT is at $47.90, a $30 strike price LEAP expiring in January 2026 might be a good choice.
Short 45-Day Call: Sell a call with a strike price close to the current price (or slightly out of the money if expecting more upside).
Example: A $50 strike call expiring in 45 days.
How This Strategy Profits in a Sideways or Bullish Market
1. Sideways Market (IBIT stays around $47.90)
The short call option will likely lose value over time due to time decay (theta decay).
If IBIT remains under $50, the short call expires worthless, and you can sell another call for the next cycle.
The weekly or monthly premium collection adds up, providing a consistent return on investment.
The LEAP call retains value, meaning your overall position remains strong.
2. Bullish Market (IBIT moves up gradually)
If IBIT rises towards $50 or beyond, the short call may need to be rolled up and out (selling a new call at a higher strike and further expiration date).
The LEAP call increases in value, providing greater intrinsic value and absorbing short call assignment risk.
Over time, this roll strategy enables the position to capture more upside while still collecting premium.
Potential Monthly or Weekly Income
If a 45-day $50-strike call sells for ~$2.50, and you roll this every 45 days, you can collect approximately $20 per year per share ($2.50 × 8 cycles per year).
This results in $2,000 per contract per year (assuming 100 shares per contract) while benefiting from upside movement in IBIT.
Worst-Case Scenario: If IBIT Declines
While the PMCC is safer than naked short calls, there are risks:
If IBIT falls below your long LEAP strike (e.g., below $30 in our example), the LEAP loses intrinsic value.
Premium collection from selling short calls can partially offset losses but may not fully compensate if IBIT drops significantly.
Unlike a true covered call, there is no hard floor since you don’t own physical shares.
Risk Mitigation
Select a deep ITM LEAP to retain higher delta and intrinsic value.
Roll the short call strategically to maximize premium collection and adjust to market conditions.
Consider a protective put if Bitcoin/IBIT experiences high volatility.
Optimizing the Trade for Maximum Profitability
To further enhance profitability, consider these adjustments:
Rolling Short Calls Efficiently
If IBIT moves up, roll short calls closer to at-the-money (ATM) to capture higher premiums.
If IBIT moves down, roll calls lower to maintain steady income while minimizing risk.
LEAP Selection for Better Leverage
Use LEAPs with a longer expiration (1.5 to 2 years out) to retain intrinsic value longer.
Avoid LEAPs with a strike too close to the market price, as they are less cost-effective.
Managing Early Assignment Risk
If IBIT surges past the short call strike price, roll the call before it becomes deeply ITM.
Avoid selling calls with very high open interest and low time value, as these have a higher chance of assignment.
Using Weekly Calls Instead of 45-Day Calls
Selling weekly options instead of 45-day calls can increase premium collection, but requires more frequent management.
Weekly theta decay is higher, making it ideal for a sideways market.
Practical Application:
If we were going to put one of these on now, we would put on the $40 strike Jan 15, 2027, Long Call and a $46 short call, just below the market. The market on $IBIT has pulled back over the past few weeks. NOTE: President Trump just announced using Bitcoin in a strategic reserve, so this trade could be much different by morning! Either way, the concept is the same and Trump's comment on Truthsocial.com should be bullish, making this or something similar a good trade.
Here is the trade structure in Think Or Swim. The theta value of the rolls without rolling up on a bullish trade is currently around $30 per contract (30 cents). This trade's premise is that by January 2027, Bitcoin and $IBIT will be higher. While you're rolling up and out each week (or month) you can collect an income on your trade.
Conclusion: Why This Strategy Works for IBIT
The Poor Man’s Covered Call on IBIT is a smart way to gain Bitcoin ETF exposure while minimizing capital requirements and generating consistent income. By leveraging LEAPs as a long hedge and rolling short calls effectively, traders can profit in both sideways and moderately bullish markets.
With IBIT at $47.90, implementing this strategy with a $30 LEAP and $50 short calls can yield substantial returns. By rolling short calls upwards as Bitcoin appreciates, you optimize for maximum profit while minimizing downside risks.
For investors looking to generate passive income while trading IBIT, this Poor Man’s Covered Call strategy presents an excellent opportunity to profit from Bitcoin’s sideways or upward movement without the need for full share ownership.
The Poor Man’s Covered Call Strategy on $IBIT Bitcoin ETF: A Profitable Approach in a Sideways or Bullish Market
DoubleDTrader.com Staff
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Poor Man's Covered Call is an Excellent way to Trade the Bitcoin ETF, IBIT.
Introduction
The Poor Man’s Covered Call (PMCC) is an excellent alternative to a traditional covered call strategy, allowing traders to generate consistent income while utilizing less capital. This strategy is particularly attractive for ETFs like $IBIT (iShares Bitcoin Trust ETF), where buying shares outright can be expensive. Instead of purchasing 100 shares of IBIT outright, traders can buy a deep in-the-money (ITM) LEAP call option and sell shorter-term calls (typically 45 days to expiration) against it.
With IBIT currently trading at $47.90, let’s explore how this strategy can be structured, how it profits in a sideways or bullish market, and how to optimize it for maximum returns.
Constructing the Poor Man’s Covered Call on IBIT
The PMCC consists of:
Long LEAP Call: Buy the furthest-out available LEAP call option (typically with 1+ years to expiration). This acts as a substitute for owning IBIT shares.
Short 45-Day Call: Sell a shorter-term call (about 45 days to expiration) at or slightly out of the money, collecting premium and reducing cost basis.
Choosing the Right Strike Prices
Long LEAP: Ideally, select a deep ITM call with a delta of 0.80 or higher (meaning the option moves closely with the stock price). This ensures strong participation in IBIT’s movement.
Example: If IBIT is at $47.90, a $30 strike price LEAP expiring in January 2026 might be a good choice.
Short 45-Day Call: Sell a call with a strike price close to the current price (or slightly out of the money if expecting more upside).
Example: A $50 strike call expiring in 45 days.
How This Strategy Profits in a Sideways or Bullish Market
1. Sideways Market (IBIT stays around $47.90)
The short call option will likely lose value over time due to time decay (theta decay).
If IBIT remains under $50, the short call expires worthless, and you can sell another call for the next cycle.
The weekly or monthly premium collection adds up, providing a consistent return on investment.
The LEAP call retains value, meaning your overall position remains strong.
2. Bullish Market (IBIT moves up gradually)
If IBIT rises towards $50 or beyond, the short call may need to be rolled up and out (selling a new call at a higher strike and further expiration date).
The LEAP call increases in value, providing greater intrinsic value and absorbing short call assignment risk.
Over time, this roll strategy enables the position to capture more upside while still collecting premium.
Potential Monthly or Weekly Income
If a 45-day $50-strike call sells for ~$2.50, and you roll this every 45 days, you can collect approximately $20 per year per share ($2.50 × 8 cycles per year).
This results in $2,000 per contract per year (assuming 100 shares per contract) while benefiting from upside movement in IBIT.
Worst-Case Scenario: If IBIT Declines
While the PMCC is safer than naked short calls, there are risks:
If IBIT falls below your long LEAP strike (e.g., below $30 in our example), the LEAP loses intrinsic value.
Premium collection from selling short calls can partially offset losses but may not fully compensate if IBIT drops significantly.
Unlike a true covered call, there is no hard floor since you don’t own physical shares.
Risk Mitigation
Select a deep ITM LEAP to retain higher delta and intrinsic value.
Roll the short call strategically to maximize premium collection and adjust to market conditions.
Consider a protective put if Bitcoin/IBIT experiences high volatility.
Optimizing the Trade for Maximum Profitability
To further enhance profitability, consider these adjustments:
Rolling Short Calls Efficiently
If IBIT moves up, roll short calls closer to at-the-money (ATM) to capture higher premiums.
If IBIT moves down, roll calls lower to maintain steady income while minimizing risk.
LEAP Selection for Better Leverage
Use LEAPs with a longer expiration (1.5 to 2 years out) to retain intrinsic value longer.
Avoid LEAPs with a strike too close to the market price, as they are less cost-effective.
Managing Early Assignment Risk
If IBIT surges past the short call strike price, roll the call before it becomes deeply ITM.
Avoid selling calls with very high open interest and low time value, as these have a higher chance of assignment.
Using Weekly Calls Instead of 45-Day Calls
Selling weekly options instead of 45-day calls can increase premium collection, but requires more frequent management.
Weekly theta decay is higher, making it ideal for a sideways market.
Practical Application:
If we were going to put one of these on now, we would put on the $40 strike Jan 15, 2027, Long Call and a $46 short call, just below the market. The market on $IBIT has pulled back over the past few weeks. NOTE: President Trump just announced using Bitcoin in a strategic reserve, so this trade could be much different by morning! Either way, the concept is the same and Trump's comment on Truthsocial.com should be bullish, making this or something similar a good trade.
Here is the trade structure in Think Or Swim. The theta value of the rolls without rolling up on a bullish trade is currently around $30 per contract (30 cents). This trade's premise is that by January 2027, Bitcoin and $IBIT will be higher. While you're rolling up and out each week (or month) you can collect an income on your trade.
Conclusion: Why This Strategy Works for IBIT
The Poor Man’s Covered Call on IBIT is a smart way to gain Bitcoin ETF exposure while minimizing capital requirements and generating consistent income. By leveraging LEAPs as a long hedge and rolling short calls effectively, traders can profit in both sideways and moderately bullish markets.
With IBIT at $47.90, implementing this strategy with a $30 LEAP and $50 short calls can yield substantial returns. By rolling short calls upwards as Bitcoin appreciates, you optimize for maximum profit while minimizing downside risks.
For investors looking to generate passive income while trading IBIT, this Poor Man’s Covered Call strategy presents an excellent opportunity to profit from Bitcoin’s sideways or upward movement without the need for full share ownership.