Wheel vs LEAPS vs Poor Man's Covered Call (PMCC)
By Stephen Manning · @StephenCFU on X · · 12 min read
Wheel vs LEAPS vs poor man's covered call compared: capital needed, max loss, time horizon and when each fits, with RGTI, NVO and Netflix PMCC examples.
The wheel suits traders who want income and are happy to own shares, LEAPS suit a strong view on a stock over one to two years, and a poor man's covered call (PMCC) suits traders who want covered call income with far less capital. Which one fits depends on how much capital you have, whether you want to own the stock, and how much management you can handle.
Look, when I first started trading options, the number of strategies felt overwhelming. I spent months bouncing between approaches, losing money on some and making it back on others. I keep coming back to these three, and I've traded all of them for years. Some I love. Some have frustrated me. This is an honest breakdown from hands-on experience, not textbook theory. (If you're brand new, the step-by-step guide to options trading for beginners covers the basics first.)
The Wheel Strategy
The Wheel is probably the most popular income strategy in options trading. Here's the thing: it's basically just combining two strategies you probably already know. You sell cash-secured puts, and if you get assigned, you flip to selling covered calls. Rinse and repeat. Simple in concept, but the execution matters. The free cash-secured put scanner shows what the put side looks like on your ticker, and if you already hold the shares, the free CFU Covered Call Scanner does the same for the covered call side.
The Wheel Strategy: A continuous cycle of selling puts and covered calls
How It Actually Works
Step 1: Sell a Cash-Secured Put. Pick a stock you'd genuinely want to own. Sell a put with the cash set aside to buy 100 shares at the strike, and collect the premium upfront. If the stock stays above your strike, you keep the money. If it drops below your strike, you buy the shares. That's the plan, but only if you'd happily pay that price: the stock can be well below your strike on the day you're assigned.
Step 2: Get Assigned. Now you own shares at your strike, which was typically below the price when you sold the put. Your real cost basis is the strike price minus whatever premium you collected.
Step 3: Sell Covered Calls. You've got shares now. Sell calls against them, at strikes at or above your cost basis so getting called away never locks in a loss. More premium. Your cost basis drops even further.
Step 4: Repeat. Shares get called away? Cool. Sell another put and start again. I walk through the wheel strategy step by step, with five stocks that suit a first wheel, in a separate post.
Real Example: My Rigetti (RGTI) Trade
I ran this exact strategy on Rigetti (RGTI). Volatile stock, which means fat premiums. I sold puts, got assigned, then sold calls against the shares for months, and every premium I collected lowered my cost basis. The lesson cuts both ways: the volatility that makes the premium rich is the same volatility that makes the shares hard to hold. I only wheel a name like that at a size I could live with owning through a big drop.
✅ What I Like About the Wheel
- Premium on every cycle
- You buy stocks at prices you're happy with
- Dead simple once you understand it
- Works great in sideways markets
- Each cycle lowers your cost basis
❌ The Downsides
- You need real capital: cash for 100 shares per contract
- Ties up that cash while you wait
- Not defined risk: if the stock craters, you own it all the way down
- Covered calls cap your upside, so you might miss huge rallies
LEAPS: The Long Game
LEAPS are just options that don't expire for a year or more. Sometimes two or three years out. The appeal? You get leveraged exposure to a stock's movement without putting up the full cost of shares. Think of it like buying a 2-year lease on a Ferrari for the price of a used Honda. You get the speed, but if you don't use it before the lease is up, you walk away with nothing.
LEAPS Profit/Loss Profile: Limited downside, unlimited upside potential
Why LEAPS Work for Long-Term Plays
Regular options expire too fast. Your thesis might be right, but if the timing is off by a month, you can lose the whole premium. LEAPS give your idea time to breathe. If you're bullish on a company but don't want to tie up $50,000 in shares, a deep in-the-money LEAPS call might cost you $8,000 to $12,000 while giving you most of the same upside exposure.
The big advantages: leverage with time (you control 100 shares for a fraction of the cost) and defined risk (your max loss is what you paid). That's it. You can't lose more than the premium.
My Novo Nordisk (NVO) Trade
I've played Novo Nordisk (NVO) with LEAPS. The thesis was simple: GLP-1 weight loss drugs were exploding, and NVO dominated that market. I didn't want to buy the stock outright, so I bought deep in-the-money calls with 18-month expirations. That's the appeal of this approach: you participate in a big move with way less capital at risk. The same stock shows the other side, too. NVO later lost more than half its value from its 2024 high, and an 18-month LEAPS bought near that top would have expired worthless. Leverage works in both directions, and your max loss on a LEAPS is everything you paid.
💡 Delta Selection Tip
When buying LEAPS as a stock replacement, I look for options with a delta of 0.70 to 0.85. This gives you solid price participation while keeping time decay manageable. The deeper you go in-the-money, the more your LEAPS acts like actual stock.
✅ What I Like About LEAPS
- Leverage without margin
- Lower capital than buying shares
- Time for your thesis to play out
- Max loss is capped at your premium
- Great for high-conviction plays
❌ The Downsides
- Premium can be expensive upfront
- Time decay still eats at you (slowly)
- No dividends
- Less liquid than stock
- You need to be right on direction
The Poor Man's Covered Call: Income on a Budget
Here's the thing about covered calls: they're great, but they require a lot of capital. Buying 100 shares of a $200 stock means locking up $20,000. The PMCC is basically renting to sublet. Instead of buying shares, you buy a LEAPS call as your "stock substitute" and sell shorter-dated calls against it. Same income strategy, fraction of the capital.
PMCC vs Traditional Covered Call: Same income strategy, fraction of the capital
How It Works
The Long Leg: Buy a deep in-the-money LEAPS call with a high delta (0.70 to 0.85). This is your stock substitute. It moves with the stock, at roughly 70 to 85 cents on the dollar to start, without you owning shares.
The Short Leg: Sell shorter-dated, out-of-the-money calls against your LEAPS, at a higher strike and an earlier expiry than the LEAPS. This generates income just like a traditional covered call, with far less capital tied up.
The Cycle: Short calls expire worthless or you close them for profit. Sell new ones. Repeat. Meanwhile, your LEAPS appreciates (hopefully) in the background. To see what the LEAPS has really cost you after each short call, here is how to track a PMCC.
When It's Threatened: If the stock runs through your short strike, my rule is one roll and done, or none. Roll the short call out in time (and up, if you can do it for a credit) once. If the rolled call is threatened again, close the position.
Netflix PMCC Example
Take Netflix (NFLX) at $85, roughly where it traded in early 2026 after its 10-for-1 split. The option prices below are illustrative, so check a live chain before you place anything. A traditional covered call needs $8,500 to buy 100 shares. With a PMCC:
- Buy: NFLX January 2027 $60 Call (LEAPS) for about $32 ($3,200)
- Sell: NFLX $90 Call about a month out for about $1.50 ($150 premium)
You've put up $3,200 instead of $8,500, 62% less capital, for a position that moves much like the shares. Your max loss is the net debit, $3,050 ($3,200 less the $150 collected), if Netflix finishes below $60 when the LEAPS expires.
One check before you place it: the gap between your strikes should be bigger than the net debit. Here the gap is $30 ($90 minus $60) and the net debit is $30.50 ($32 minus $1.50), so this setup misses by 50 cents. If Netflix ran through $90, you'd need the LEAPS' leftover time value just to break even. Sell a higher strike or buy a deeper in-the-money LEAPS, then recheck.
✅ What I Like About PMCC
- A fraction of the capital of 100 shares
- Max loss is defined: the net debit
- Repeatable premium from the short calls
- Covered call exposure on stocks where 100 shares would tie up too much cash
❌ The Downsides
- More moving parts to manage
- No dividend income
- Early assignment on the short call (most likely just before an ex-dividend date) leaves you short 100 shares until you close the position
- Your LEAPS still has time decay
- Need spread approval, and an understanding of spreads and Greeks
Which Strategy Should You Actually Use?
Forget the textbook for a second. Here's how the three stack up side by side, using the Netflix numbers above.
My Honest Take
Use the Wheel if: You have the cash to own 100 shares and actually want them. It suits retirement accounts, where assignment is welcome, not scary. You're playing the long game and don't mind holding through volatility.
Use LEAPS if: You have a strong opinion on where a stock is headed over the next year or two. You want leverage without the stress of short-term options. Less babysitting than short-dated trades, though you still need an exit plan.
Use PMCC if: You love the idea of covered calls but don't want to tie up the cash for 100 shares. You're comfortable with a bit more complexity and with getting spread approval from your broker.
Whichever you pick, size it the same way: the most you can lose on one trade should be 1 to 2% of the account. On a LEAPS or a PMCC, that's the debit you pay. On a wheel put, it's the share cost at the strike less the premium, which is why the wheel needs the biggest account of the three to stay inside the rule. Here's more on how much to risk per trade.
📝 A Note on IRAs
All three strategies can work in retirement accounts. The Wheel is particularly popular in IRAs because you actually want assignment (you're buying shares at your price). The PMCC needs spread approval, and brokers number their approval levels differently, so check what Fidelity, Schwab (which now holds the old TD Ameritrade accounts) or your own broker requires for an IRA.
Go Deeper
I put together a presentation that walks through each strategy with visual examples and real trade setups. If you want the details, check it out:
🎯 See Trades Like These in the Open
Cash Flow University posts every alert in real time with the risk stated, teaches the reasoning behind each trade, and keeps an audited record of every closed trade.
Get Your Free Starter Kit →Wheel vs LEAPS vs PMCC FAQ
These three strategies changed how I approach the market. The trick is matching the strategy to your situation: your capital, your time, your risk tolerance. Either way, the income comes from repeating small, well-sized trades, which is the real secret to consistent options income.
Filed under: Covered Calls, Income Strategies, Cash-Secured Puts