Introductory Context
"In Indian markets, true LEAPS (1-2 year options) are not available for most instruments -- Nifty options are available only for up to 3 monthly expiry series at any given time (approximately 3 months). However, the PMCC's economic logic applies to Indian markets using the longest available monthly expiry (3 months out) as the 'LEAPS equivalent,' and selling weekly or monthly calls against it. The PMCC in Indian markets requires more active management of the back month option (since it must be rolled to the next available expiry every 3 months) but achieves the same income generation objective as the US LEAPS-based PMCC. "
The PMCC Logic - Share Ownership Simulation
A regular covered call (Module 12) requires owning the underlying shares. For Nifty: owning 75 Nifty units at 23,500 = Rs 17,62,500 of capital. A covered call on this position generates monthly income of approximately Rs 7,500 to Rs 15,000 (depending on the strike chosen). The capital required is enormous relative to the income generated.
The PMCC substitutes the share ownership with a deep ITM long-dated call option. A deep ITM call (say 20,000 CE, with Nifty at 23,500 = Rs 3,500 ITM) behaves almost like the underlying: it has delta near 1.0 (moves almost point-for-point with Nifty). The 20,000 CE with 3 months to expiry costs approximately Rs 3,700 per unit (Rs 3,500 intrinsic + Rs 200 time value). Per lot: Rs 3,700 x 75 = Rs 2,77,500. This is dramatically less capital than the Rs 17,62,500 required to own 75 Nifty units -- yet the position behaves similarly directionally because the deep ITM call's delta approaches 1.0.
Against this deep ITM long call (the 'synthetic shares'), weekly OTM calls are sold exactly as in a covered call. The weekly OTM call generates Rs 50 to Rs 80 per unit per week in premium, reducing the effective cost of the long ITM call. Over 12 weeks (3 months until the back month expires), the weekly premium collection may reduce the effective 20,000 CE cost from Rs 3,700 to Rs 2,800 to Rs 3,200 per unit -- representing a meaningful cost reduction from the covered call income.
PMCC vs Standard Covered Call Comparison
Standard covered call: Long 75 Nifty units at Rs 23,500. Capital required: Rs 17,62,500. Weekly income: sell 24,000 CE at Rs 52. Monthly income: approximately Rs 200-250 per unit. Return on capital: Rs 52 / Rs 23,500 = 0.22% per week (11.4% annualised). PMCC: Long 1 lot 20,000 CE (3 months, Nifty at 23,500) at Rs 3,700 per unit. Capital required: Rs 2,77,500 per lot. Weekly income: sell 24,000 CE at Rs 52. Return on capital: Rs 52 / Rs 3,700 = 1.41% per week (73% annualised). The PMCC's return on capital is 6.4x the standard covered call's return on capital. Capital efficiency: 15.7x less capital required for equivalent weekly income.
The Indian Market PMCC Implementation
Indian market PMCC structure: Step 1 -- buy the deepest ITM call available for the longest available expiry (3 months). For Nifty at 23,500: buy Nifty 21,000 CE (2,500 points ITM, delta approximately 0.90) with 3 months to expiry. Price: approximately Rs 2,700 per unit (Rs 2,500 intrinsic + Rs 200 time value). Step 2 -- Sell the current week's or current month's OTM call at a strike that represents an acceptable 'synthetic' covered call exit level. For a bullish view: sell 23,800 CE or 24,000 CE at approximately Rs 52 per unit. Step 3 -- Roll the short call each week (Wednesday entry, Monday exit) as described in Topic 16.14. Step 4 -- After 3 months (the back month call's expiry): close the deep ITM call and re-enter a new 3-month deep ITM call (the roll of the 'LEAPS equivalent' back month).
The Time Value Risk in the PMCC's Back Month
The PMCC's deep ITM back month call has minimal time value (the deep ITM 20,000 CE's Rs 200 time value represents only 5.4 percent of the total Rs 3,700 cost). This small time value erodes over the 3-month holding period at approximately Rs 1 to Rs 2 per unit per day -- a slow and manageable cost. Contrast this with a shorter-dated ATM option used as the back month: the time value is much larger and decays much faster, making the back month option's cost more significant relative to the weekly short call income. The deep ITM back month call's minimal time value is a key advantage of the PMCC -- the position is primarily intrinsic value (similar to stock ownership) with only a small time premium that decays slowly.
Risks Specific to the PMCC
The PMCC has two specific risks beyond the standard diagonal spread risks. First: the underlying's decline. If Nifty falls sharply below the back month call's strike (20,000 in the example), the deep ITM call begins losing intrinsic value and the weekly short call income may not be sufficient to offset the intrinsic value loss. The PMCC's maximum loss (if Nifty falls to or below the back month's strike) is approximately the full cost of the deep ITM call minus the accumulated weekly premiums. Second: the back month expiry. After 3 months, the deep ITM back month call must be rolled to the next 3-month expiry. The roll requires buying the new 3-month deep ITM call and selling the expiring one. If Nifty has declined significantly, the new 3-month call may be considerably cheaper than the original but the position has accumulated losses from the intrinsic value decline that must be evaluated before deciding to continue.
Using Nifty's 3-Month Options as the LEAPS Equivalent
True LEAPS (1-2 year options) provide the most cost-efficient PMCC structure in US markets because the very long-dated ITM call has nearly perfect delta-1 correlation with the underlying while having minimal time value to erode. In Indian markets, the longest available Nifty option (3 months) achieves the same effect but at a shorter duration: the 3-month deep ITM call must be rolled every quarter rather than annually. The quarterly roll creates additional transaction costs and requires monitoring (the standard PMCC roll from Topic 16.14) but achieves the same capital efficiency advantage over the standard covered call. For Indian market practitioners: the 3-month deep ITM Nifty call is the closest practical equivalent to the US LEAPS-based PMCC.
The Poor Man's Covered Call is the options trader's answer to the question: 'How do I implement covered call income without deploying Rs 17 lakh in Nifty units?' The answer: buy a deep ITM call for Rs 2.77 lakh that behaves like 75 Nifty units, and sell weekly covered calls against it exactly as you would against the actual underlying. The capital efficiency (15.7x) and the return on capital (6.4x) make the PMCC the most financially efficient covered call implementation for most retail accounts.
The PMCC's Deep ITM Call Delta Is Not Exactly 1.0
A deep ITM call with delta 0.90 (not 1.0) means the position does not move exactly with the underlying for large Nifty moves. If Nifty falls 1,000 points, the deep ITM call loses approximately 900 points of intrinsic value (0.90 delta x 1,000), not 1,000 points. This delta-less-than-1 means the PMCC slightly underperforms the true covered call (with full share ownership) on large upward moves (the call gains 90 percent of the advance, not 100 percent) and slightly outperforms on large downward moves (the call loses only 90 percent of the decline). This delta gap is the premium paid for using the deep ITM call instead of the actual shares.
Use the Deep ITM Call With Delta 0.85 to 0.90 as the PMCC Back Month
For the Indian market PMCC, select the back month call strike that produces a delta of 0.85 to 0.90 (deeply ITM). At this delta range: the call behaves very similarly to the underlying (capturing 85 to 90 percent of each point's movement), the time value is minimal relative to the intrinsic value (making the position's effective cost close to the pure directional exposure), and the option has sufficient liquidity for efficient entry and rolling every 3 months. Strikes with delta below 0.80 are not sufficiently 'stock-like' for the PMCC's share-simulation purpose. Strikes with delta above 0.90 are typically deeper ITM, costing more intrinsic value without meaningful additional directional efficiency.