Read Me First — PMCC Pro

A Poor Man's Covered Call is a diagonal spread: a long-dated call supplies leveraged equity exposure while repeated short calls collect premium and cap part of the upside. PMCC Pro evaluates both legs together rather than treating short-call premium as independent income.

What this version studies

The lab replays the bundled historical SPY or QQQ return record from a selected start year. It is not a Monte Carlo experiment and does not reconstruct archived option chains. Both option legs are priced with Black–Scholes using rolling realized volatility plus the IV premium you select.

Key controls

• Long target delta, starting DTE and roll-at DTE. These control how stock-like the long call is and when it is replaced.
• Short target delta and DTE. These control premium, upside room and expiration frequency.
• IV premium over realized volatility. Richer volatility helps the short call but also makes the long call more expensive.
• Dividend yield. The bundled history contains adjusted total returns. The lab removes the selected yield to create an approximate price-only option path and uses the same yield in option pricing.
• Cash and borrowing rates. Positive cash earns the selected risk-free rate. Negative cash is charged the selected borrowing rate.

How time and settlement work

DTE is measured in calendar days, including weekends and market holidays. Short calls are cash-settled at expiration and reopened immediately when feasible. Early assignment, dividend-driven exercise and bid/ask spreads are not modeled. The option fee is charged on each modeled contract transaction, including expiration settlement.

How to read the outputs

• PMCC: long call, short call and cash combined.
• Long-call only: the same long-call and roll policy without the short-call overlay.
• Stock total return: same starting capital following the adjusted historical return series.
• Gross short premium: premium received before short-call settlement losses, fees and financing. It is not profit.
• Maximum drawdown: the largest peak-to-trough loss in the marked PMCC account.

A good first experiment

1. Run the defaults and save the result.
2. Change only short-call delta through 0.15, 0.20, 0.25 and 0.30.
3. Compare PMCC with the long-call-only result to isolate the overlay's contribution.
4. Repeat at several IV-premium assumptions.
5. Repeat for SPY and QQQ and for several available start years.
6. Check whether the conclusion survives reasonable dividend, cash and borrowing-rate assumptions.

Important limitations

• The price-only option path is estimated from adjusted returns using a constant dividend yield; actual historical yields varied.
• Rolling realized volatility is not an archived implied-volatility surface.
• Black–Scholes cannot reproduce every skew, term-structure, liquidity or early-exercise effect.
• Cash settlement differs from actual assignment handling at some brokers.
• A favorable historical combination is exploratory evidence, not a proven trading rule.