The breakeven point for a Covered Call is calculated by subtracting the premium received from the stock purchase price:
Breakeven (Covered Call) = Stock Price – Premium ReceivedFor a Poor Man’s Covered Call (PMCC), the breakeven is the cost of the long in-the-money call minus the short call premium:
Breakeven (PMCC) = Long ITM Call Cost – Short Call Premium👉 Use this free tool to calculate both instantly: Covered Call & PMCC Calculator.
Introduction
Options traders often struggle with one crucial question:
“At what price do I break even on my covered call or poor man’s covered call trade?”
Knowing your breakeven point is essential because it:
- Defines the minimum price your stock (or option) must reach to avoid losses.
- Helps compare risk/reward profiles between Covered Calls and PMCC.
- Guides trade management decisions (e.g., when to roll, close, or let expire).
This guide will break down breakeven formulas for both strategies, show real examples with tables, and explain how to use the PMCC and Covered Call Calculator to simplify your calculations.
What is a Covered Call?
A Covered Call is a popular options strategy where you:
- Own 100 shares of stock.
- Sell (write) a call option against those shares.
- Collect the option premium as income.
- Why use it? Generates consistent income on stocks you already own.
- Risk? You cap your upside profit potential beyond the call strike.
- Breakeven Importance: It tells you how much your stock can drop before you start losing money.
Covered Call Breakeven Formula
The formula is straightforward:
Breakeven = Stock Purchase Price – Premium ReceivedExample:
- Stock price = $39
- Premium received = $0.90
Breakeven = 39 – 0.90 = $38.10So, as long as the stock stays above $38.10, you won’t lose money.
Covered Call Breakeven Table
| Stock Price | Premium Received | Breakeven Price |
|---|---|---|
| $39 | $0.90 | $38.10 |
| $50 | $1.50 | $48.50 |
| $75 | $2.25 | $72.75 |
| $100 | $3.00 | $97.00 |
👉 You can test more scenarios instantly with our free Covered Call Calculator.
What is a Poor Man’s Covered Call (PMCC)?
The Poor Man’s Covered Call (PMCC) is a lower-capital alternative to covered calls. Instead of buying 100 shares, you:
- Buy a deep in-the-money (ITM), long-dated call option (LEAPS).
- Sell a short-dated, out-of-the-money (OTM) call option against it.
This synthetic version mimics a covered call but requires much less capital.
- Why use it? Lower cost, higher annualized returns.
- Risk? More complex and sensitive to strike selection and time decay.
- Breakeven Importance: Knowing your breakeven ensures you’re not overpaying for the long call relative to the short premium received.
PMCC Breakeven Formula
The formula:
Breakeven = Cost of Long ITM Call – Premium from Short CallExample:
- Long ITM Call cost = $27.65
- Short Call premium = $3.10
Breakeven = 27.65 – 3.10 = $24.55So, your breakeven is $24.55 per share equivalent.
PMCC Breakeven Table
| Long ITM Call Cost | Short Call Premium | Breakeven Price |
|---|---|---|
| $27.65 | $3.10 | $24.55 |
| $30.00 | $4.00 | $26.00 |
| $45.50 | $6.25 | $39.25 |
| $60.00 | $8.50 | $51.50 |
👉 Use our PMCC Calculator to explore your own setups.
Side-by-Side Comparison
| Feature | Covered Call | Poor Man’s Covered Call (PMCC) |
|---|---|---|
| Capital Requirement | High (buy 100 shares) | Lower (buy 1 ITM call) |
| Breakeven Formula | Stock Price – Premium | Long Call Cost – Short Premium |
| Max Profit | Strike Price – Stock Price + Premium | Strike Spread – Total Trade Cost |
| Max Loss | Stock Price – Premium | Total Trade Cost (ITM call cost – premium) |
| Annualized Return Potential | Moderate (10–60% typical) | High (100%+ possible) |
Why Breakeven Matters
- Covered Call: Helps you evaluate whether the premium is worth the downside risk.
- PMCC: Ensures you’re not overpaying for the LEAPS option relative to your short call.
- Both: Understanding breakeven makes you a smarter trader, prevents surprise losses, and aligns with your capital risk tolerance.
Simplifying the Math with Calculators
While formulas are easy enough, real trades often involve multiple legs and different time frames. That’s where tools like the Covered Call & PMCC Calculator come in handy.
This free tool instantly computes:
- Breakeven price
- Max profit / loss
- Annualized return
- Interactive payoff charts
So instead of doing manual math every time, you can input your values and see results instantly.
Tips for Using Covered Call & PMCC Strategies
✔ Pick liquid options – Tight bid/ask spreads reduce slippage.
✔ Don’t chase high premiums blindly – Sometimes, higher premiums mean higher risk.
✔ Track annualized returns – Especially for PMCC, where leverage boosts returns.
✔ Use calculators for quick testing – Enter multiple strike/premium scenarios before placing a trade.
✔ Manage risk actively – Roll calls early if the stock moves faster than expected.
FAQs
Q1. Is a PMCC riskier than a covered call?
Yes, since it involves options only, it can be more sensitive to volatility and expiration risks.
Q2. Can I use a poor man calculator to predict exact returns?
Yes. Our PMCC and Covered Call Calculator provides accurate calculations with payoff diagrams.
Q3. Why is breakeven lower for PMCC than covered calls?
Because you’re not buying 100 shares, but instead using a lower-cost LEAPS call.
Q4. Should beginners start with covered calls or PMCC?
Covered calls are simpler and safer for beginners. PMCC is better for experienced traders with lower capital but more strategy knowledge.
Final Thoughts
Breakeven points are the foundation of options risk management. Whether you’re trading a covered call or a poor man’s covered call (PMCC), knowing your breakeven ensures you can manage downside risk while maximizing income potential.
Instead of doing the math manually, use the free Covered Call & PMCC Calculator to instantly calculate breakeven, max profit, max loss, and annualized returns.
For traders, mastering breakeven analysis isn’t optional — it’s what separates consistent winners from the rest.