In this interview, Tom King explains his exact rules for trading a dynamic variation of the Poor Man’s Covered Call. He breaks down how he enters, manages, and exits trades—based strictly on market conditions and a repeatable process.
Learn about the Dynamic Poor Man’s Covered Call
Tom King
Tom King is an options trader from Ohio, USA, with over 40 years of experience. He focuses on premium-selling strategies and emphasizes structured, rules-based trading with a strong focus on consistency and risk control.
Poor Man’s Covered Call
A Poor Man’s Covered Call (PMCC) replaces stock ownership with a long-term call option (LEAPS) or a synthetic stock position, while generating income by selling shorter-term calls.
Tom King’s Dynamic Poor Man’s Covered Call builds on this by actively adjusting the short call strike depending on market conditions. Instead of always selling out-of-the-money calls, he rotates between out-of-the-money, at-the-money, and in-the-money strikes.
Entry mechanics: how the trade is opened
The strategy starts with a long-term position designed to mimic stock exposure.
Long position (foundation)
Tom uses two main approaches:
- Deep in-the-money LEAPS call (typically around 80–90 delta, ~12 months out)
- Synthetic stock position:
- Buy an at-the-money call
- Sell an at-the-money put (same strike, same expiration ~1 year out)
- Often add a protective put ~20% out-of-the-money to cap downside
The synthetic approach is often preferred due to lower cost and higher delta exposure, but it comes with more downside risk if not protected.
Asset selection
He strongly prefers:
- Indexes and ETFs like SPY, QQQ, SPX
- Avoids individual stocks when possible due to event risk
For entries, he looks for:
- Price above the 200-day moving average
- RSI above ~35 (not oversold)
- The 8-day EMA (Exponential Moving Average is above the 21-day EMA
- Ideally, a pullback to the 21–50 EMA in an uptrend
Selling calls: the core income engine
Once the long position is established, Tom sells short-term calls—typically 1–2 weeks to expiration.
The key difference in the dynamic poor man’s covered call is how the strike is selected:
Uptrend (8 EMA above 21 EMA)
- Sell slightly out-of-the-money calls (~20–30 delta)
- Maintain upside exposure
Neutral market
- Sell at-the-money calls (~50 delta)
- Maximize extrinsic value
Downtrend (8 EMA below 21 EMA)
- Sell in-the-money calls (~60–70 delta)
- Add downside protection through intrinsic value
His target is typically around 0.75% to 1% of the stock price in extrinsic value per week, which is amplified relative to the lower capital used in the LEAPS position.
Understanding the edge: extrinsic value
The strategy is built around consistently capturing extrinsic (time) value.
- Out-of-the-money calls = all extrinsic (but less premium)
- At-the-money calls = maximum extrinsic
- In-the-money calls = mix of intrinsic + extrinsic, providing downside protection
Even when trades are rolled for a debit, the trader still keeps the extrinsic portion already captured.
Trade management and rolling rules
Management is rule-based and active.
When to close or roll
Tom typically:
- Closes or rolls when 80–90% of the extrinsic value is captured
- May roll earlier if:
- ~70% is captured quickly (within a few days)
Timing
- Most rolls happen on expiration day (Friday)
- He avoids holding into expiration to reduce assignment risk
- Assignment typically only happens when extrinsic value is nearly gone
Rolling approach
When rolling:
- Reassess market conditions (trend via EMAs)
- Select new strike accordingly (OTM, ATM, ITM)
If the position has moved significantly:
- May only partially adjust the strike to avoid “whipsaw”
- Avoids overreacting to short-term moves
Exit mechanics: when the trade ends
This is a long-term trade, often lasting many months.
Tom’s main exit rules:
- Target exit: Around 100% total return on the position
- Early exit:
- If ~50% profit is reached in half the expected time
- Risk exit:
- If total position (LEAPS + collected premium) is down ~30%
He may also exit if:
- The underlying has moved significantly higher, and gains are largely unrealized
- He wants to lock in profits from the long position
Risk and limitations
While the poor man’s covered call is often seen as lower risk, there are still key challenges:
- Leverage risk from LEAPS or synthetic positions
- Whipsaw markets (rapid up/down moves) can hurt performance
- Selling out-of-the-money calls in a downtrend can lead to persistent losses
The dynamic adjustment—especially selling in-the-money calls in weak markets—is designed to reduce these risks.
Tom rates the strategy around 3 out of 10 in risk, assuming proper execution and asset selection.
Results and performance
Based on his own tracking, Tom King reports that his dynamic poor man’s covered call strategy has delivered approximately 70–80% returns over a 10–12 month period in favorable or sideways market conditions.
In one detailed example, he shows a trade running for 318 days with a gain of around 82%, compared to about 33% for the underlying asset over the same period. He also highlights cases where the strategy outperformed significantly—such as a position exceeding 100% return while the underlying rose only about 12%—driven by a combination of long position appreciation and consistently collected extrinsic value.
At the same time, he emphasizes that results depend heavily on market conditions and execution, and that the consistency comes from systematically capturing premium week after week rather than relying on directional moves alone.
Treating trading like a business
A core principle in Tom’s approach is discipline.
He:
- Tracks every trade in detail
- Monitors both premium collected and position value
- Continuously refines his strategy
This structured approach is key to achieving consistent results over time.
