The $500 Cheap Options Strategy That Works

When exploring options trading, many beginners get discouraged by the high capital requirements needed for traditional options trading strategies.

That’s why the $500 cheap options strategy approach has gained significant traction among retail traders recently. This innovative low-cost options trading strategy lets you harness the power of covered calls without committing thousands of dollars to buy stock shares outright, making it perfect for options traders starting with smaller accounts while still aiming to generate consistent monthly income.

But how to trade options with little money (just under $500)?

In this article, we’ll show you how this cheap options strategy consistently yields 15-20% monthly returns and reveal how to find cheap options to trade that’s helping small account traders grow their portfolios steadily. 

What is a Poor Man’s Covered Call (PMCC)? 

A Poor Man’s Covered Call (PMCC) is an affordable options trading technique that combines long-term and short-term options to generate income while requiring significantly less capital. At its foundation, these budget-friendly options strategies involve two key steps:

• Purchasing a deep in-the-money LEAPS call option that expires in 6-12 months (this replaces owning actual stock shares)
• Writing weekly or monthly out-of-the-money call options against your LEAPS position

The inexpensive options trading strategy earned its name because it allows traders to participate in covered call trading without needing $10,000-$30,000 to purchase 100 shares of quality stocks.

An example of a poor man’s covered call

Let’s look at a real example: with Ford (F) trading at $12, here’s how you could set up a PMCC:

• Buy a $9 LEAPS call expiring in 6 months for $400
• Sell a $13 call expiring next week for $15

Unlike traditional covered calls that might require $1,200 to buy 100 F shares, this PMCC position only needs about $400 to control the same amount of stock.

The weekly call sales can generate $10-$15 in premium income, which helps offset your initial LEAPS cost when these short calls expire worthless above your breakeven.

Meanwhile, your long-dated LEAPS option provides similar upside potential as owning shares directly, but at roughly 15-20% of the cost, making it perfect for options trading with limited capital.

This approach particularly suits investors who want to generate consistent weekly income while maintaining bullish exposure to quality stocks they can’t afford outright. Now, let’s explore exactly how this $500 strategy compares to traditional $30,000 covered calls.

Poor Man’s Covered Call vs a Classic Covered Call

Unlike the poor man’s covered call, the standard covered call involves buying shares of a stock and then sell a call option against those shares.

When to Choose Which:

• Covered Calls: Suitable for investors who already own a stock and want to generate income while maintaining some upside potential.  
• Poor Man’s Covered Calls: Suitable for investors with limited capital who want to participate in the upside potential of a stock without the full cost of ownership. 

How to Implement the $500 Cheap Options Strategy

The $500 PMCC strategy works best when targeting stable blue-chip stocks or ETFs that show consistent upward momentum over time. In these cases, we can collect weekly premium income through short calls while our long-term LEAPS position benefits from the stock’s gradual appreciation.

Choosing the Right Stocks

Low to Moderate Stock Price: Look for stocks priced between $10 and $50. Stocks in this range are affordable for purchasing LEAPS options and selling short-term calls.

Focusing specifically on stocks under $50, here are additional stock recommendations:

• Ford Motor Company (F)
• AT&T Inc. (T)
• Pfizer Inc. (PFE)
• Bank of America Corporation (BAC)
• General Electric Company (GE)
• Altria Group, Inc. (MO)
• Intel Corporation (INTC)
• Cisco Systems, Inc. (CSCO)

If executed properly with quality stocks like these, you’ll generate steady weekly income between $50-$200 while maintaining upside potential in your LEAPS position.

For optimal PMCC setups, we need to carefully select our long LEAPS strike prices to minimize time decay while maximizing our potential returns. This means choosing LEAPS options that are at least 6-12 months out and 70-80% in-the-money, which provides more intrinsic value and less exposure to theta decay.

While deeper ITM LEAPS cost more upfront, they offer better protection and higher probability of profit for our overall position.

These technical details might seem complex, but following a few key guidelines makes implementation straightforward.

Setting Up Your Trade

Start by purchasing your deep ITM LEAPS call on a stable stock, ideally choosing deltas between 0.70-0.80 for optimal risk-reward. Once you own your LEAPS, you can begin selling weekly calls about 2-3 strikes out-of-the-money to collect consistent premium income. If your short call gets challenged, simply roll it forward and up to avoid assignment while collecting more premium.

The beauty of PMCCs is that your maximum risk is limited to the initial LEAPS cost minus premiums collected from short calls. This creates a much safer position compared to traditional covered calls requiring full stock ownership. 

Step-by-Step Guide to Executing a Poor Man’s Covered Call

Let’s walk through exactly how to execute a $500 cheap options strategy (Poor Man’s Covered Call) step by step.

Step #1: Opening Your PMCC Position

To begin trading PMCCs successfully, you’ll need to follow these two key steps:

1. Select and purchase a deep ITM LEAPS call that expires in 6-12 months
2. Write an OTM weekly or monthly call against your LEAPS position

This combination of low-risk options trading strategies creates a position that generates weekly income while maintaining long-term upside exposure.

Real Example using AMC stock:

Let’s say AMC is trading at $4.50. Buy the $3 LEAPS call expiring in January 2025 (300 DTE) for $2 ($200 cost). Sell the $5 weekly call expiring this Friday (5 DTE) for $0.10 ($10 premium income). Current AMC price remains at $4.50.

Step #2: Understanding Your Profit Potential

To calculate the maximum possible profit from your PMCC position, use this simple formula:

Maximum Profit = Distance between strikes – Net debit paid

Let’s use our AMC example to illustrate. With strikes $2 apart ($5 – $3) and net debit of $1.90 ($2 – $0.10), maximum profit is $0.10 or $10. Remember that each contract controls 100 shares, so multiply your per-share calculations accordingly.

Remember that your short calls expire weekly, allowing you to sell new ones repeatedly while holding your LEAPS. This creates ongoing income potential beyond the initial maximum profit calculation.

Step #3: Understanding Risk Management

Your maximum risk in a PMCC trade is limited to your initial net debit paid. Using our AMC example, even if AMC dropped significantly, your maximum loss would be capped at $190 (the $200 LEAPS cost minus $10 premium received).

Step #4: Managing Theta Decay

Options traders use “theta” to measure how time affects option prices. PMCCs typically benefit from positive theta because your short calls decay faster than your LEAPS.

A positive theta position makes money as time passes, while negative theta loses value. PMCCs are structured to capture positive theta through weekly premium sales.

Step #5: Selecting Strike Prices

Choosing the right strike prices is crucial for PMCC success, but these guidelines make it straightforward:

• Choose LEAPS strikes with .70-.80 delta and minimum 180 days until expiration
• Sell weekly calls with .20-.30 delta that expire in 5-7 days

This approach balances consistent premium income from short calls while protecting your LEAPS position against assignment risk.

Step #6: Managing Your Position

As your short calls approach expiration worthless, buy them back for pennies and immediately sell new ones for the following week. This process generates steady weekly income.

If your short calls become threatened by price movements, roll them up and out to collect additional premium while protecting your position. When your LEAPS approaches 90 days until expiration, consider rolling it forward to maintain your position’s effectiveness.

When executed properly with quality stocks, disciplined strike selection, and consistent weekly call sales, the $500 cheap options strategy can generate 15-20% monthly returns while limiting downside risk.