MM73 - Covered Calls vs PMCC

Hi everyone. I get this question all the time, so I want to address it directly. This is not financial advice. I am not a certified trading advisor and I am not a CPA. So many of you ask me the same thing: do I like poor man's covered calls more, or do I like selling covered calls against stock? They are very different animals. I made a course enhancement video that goes into this in great depth, but it comes up so often that I want to touch on it again right here.

Let's start with the simpler one, selling a call against stock you actually own. There is honestly not that much you have to think about. Say you own Astera Labs and you sell a July 280 call while the stock is at 250, and let's say you originally bought your stock way back at 100. Now the stock blows right through your strike and runs all the way to 400. What happens? Your short call gets exercised, your stock gets called away, and you are done. There is a tax consideration if this is outside a retirement account, because you are taxed from your 100 cost basis up to the 280 strike where you were called away, plus the credit you collected. But mechanically, you do not have to think about it much at all. If you told yourself going in that you are okay getting called away, then you simply do not care. That clean, hands-off exit is the real benefit of selling calls against stock.

Now, a poor man's covered call looks like the very same trade on the surface. But it does not unwind the same way at all, and this is exactly where I see people make a costly mistake.