Strategy Source

Creator/Channel: Tom King

Published Date: May 25, 2026

Source Link: https://www.youtube.com/watch?v=_bwfM05enRw

Trade Setup

Action	Leg	DTE	Strike Price / Delta Target	Width
Buy (+)	Long Call	LEAPS (Long-term)	560 Strike / 80 Delta	–
Sell (-)	Short Call	5 DTE	704 Strike / ~71 Delta	$144

• Total Capital Required: $20,000
• Execution Context: The video demonstrates a theoretical model using recent market pricing for QQQ (trading around $715).

Strategy Application

This strategy is an In-The-Money (ITM) variation of the Poor Man’s Covered Call (PMCC). Instead of buying 100 shares of a stock to sell covered calls against, you buy a deep-in-the-money, long-term option (LEAPS) to act as a stock replacement. This achieves about 80% of the tracking efficiency of the actual stock but requires 72% less capital.

The core twist here is that instead of selling out-of-the-money calls to capture upside appreciation, you deliberately sell In-The-Money (ITM) short calls against your LEAPS to prioritize safety and high weekly cash flow.

• Strike Selection via Delta: The setup requires buying the LEAPS leg at an 80 Delta (Strike metric / Directional bias or “probability of success”) and selling the short call at around a 71 Delta. This creates a highly neutralized “net Delta” of +9. Essentially, instead of experiencing the volatility of 100 shares, your position only fluctuates as if you were holding 9 shares of the underlying ETF.
• The Buffer Zone: By selling an ITM short call (e.g., selling the 704 strike when QQQ is at 715), you capture massive downside protection. In this scenario, you collect $17 in total premium, which consists of $11 in intrinsic value (your buffer) and $6 in extrinsic value (your actual profit target).
• Time Differential: The strategy relies heavily on the time gap between the legs. The LEAPS provides long-term structural stability, while the 5 DTE short call takes advantage of rapid Theta (“Time decay” mechanics). The extrinsic value of that short-term call will aggressively decay to zero by the end of the week, dropping straight to your bottom line.
• Market Environment: This approach is designed to be highly resilient. Because you are heavily buffered and delta-neutralized, the strategy thrives in sideways, grinding down, or moderately up markets. The goal is pure weekly income generation, entirely ignoring underlying capital appreciation.

Risk Profile

• Wing Widths & Structural Risk: This is a diagonal spread with a $144 Wing Width between the 560 LEAPS and the 704 short call.
• Max Loss & Downside Breakeven: The premium collected gives you a massive shield against market drops. Because the short call brings in $1,700 per contract, the underlying QQQ would need to drop by $2,125 against your 80-Delta LEAPS before you experience a net loss. This puts the structural break-even point at roughly $693.75, allowing the market to crash by nearly 3% in a single week before the position turns negative.
• Assignment Risk: Because the short call is In-The-Money, early assignment is a technical risk. However, the transcript notes that as long as there is still a healthy amount of extrinsic value left on the short call, buyers are highly unlikely to exercise it.
• Capital Preservation: The strategy is built to generate approximately $500 per week using a core capital outlay of $20,000.

Expected Outcome

The beauty of this mathematically hedged setup is that it is designed to profit in three completely different market directions:

1. The “Tail” (Flat Market)

If the market does absolutely nothing and trades sideways, time decay does all the heavy lifting. The $600 in extrinsic premium you collected on the short call burns down to zero over 5 days, and you keep the cash.

2. The Downside Drop

This is where the ITM short call shines. If QQQ drops to exactly your short strike (704), the LEAPS will lose about $1,120 in value. However, the short call absorbs the hit. You get to keep the full $1,700 premium collected from the short call, resulting in a net profit of around $580 for the week.

3. The Upside Rally

If the market rockets upward by 2%, your short call will lose money on its intrinsic value (roughly an $800 loss). However, your 80-Delta LEAPS will capture the upside move, gaining approximately $1,120. When netted out, you still walk away with roughly $320 in profit.

Management & Exit Triggers

• Primary Target: Do not hold the short call through expiration. Look to close or roll the short call when 80% to 90% of its extrinsic value is gone (leaving about 10% to 20% remaining).
• Rolling Protocol: When replacing the expired short call, look for an expiration around 7 DTE and ensure you are collecting at least $5.00 ($500) of new extrinsic premium to maintain your income floor.
• Evaluation Rule: Never evaluate the P&L of the short call in isolation. Always net the short call’s gains or losses against the LEAPS to understand the true health of the trade.