Covered Calls on MSFT: $41,000 vs a $1,300 Poor Man's Covered Call

A covered call on Microsoft means buying 100 shares first. At about $417 a share, that is roughly $41,000 tied up to collect a few dollars of premium. Dan Sheridan, a 30-year Cboe veteran, walks through ways to get covered-call-style long exposure with far less capital, down to about $1,300, using a long diagonal, often called a poor man’s covered call. The risk profile isn’t the same as owning the shares, which is part of what the modeling shows.

Dan is clear that there is nothing wrong with covered calls. Some people hold stock they bought years ago and do not want to sell for tax reasons. His question is whether there is a way to get covered-call-style exposure with less capital and better yield potential. He shows four trades, all modeled in Option Omega’s modeling tool.

When a covered call makes sense

Dan’s candidates for covered calls, or buy-writes, are stocks someone likes fundamentally for six months, a year or two years. Not a swing trade. Every trade in this video is intentionally long delta.

His example is Microsoft as of February 10, 2026. Over the previous three months the stock had fallen from 513 to 392, then rallied about 10% in three or four days to around 417.

Trade 1: the traditional covered call

• Long 100 shares of MSFT at about $417, roughly $41,000.
• Short one call 10 days out (the Feb 20 expiration).

A 420 call paid about $5.80, or $583 if Microsoft finished at 420 or lower. Going further out of the money, a 435 call, about $17 above the stock, paid about $1.50.

Dan explains the 435 call’s 17 delta as roughly a 17% chance of Microsoft finishing above 435 in 10 days. If it stays below, the premium is kept along with any stock appreciation. Either way, the trade ties up about $41,000.

Trade 2: the stock surrogate diagonal ($4,300)

Instead of buying the shares, Dan buys a deep in-the-money call further out in time as a “stock surrogate”:

Leg	Expiration	Strike	Delta
Buy 1 call	April 17 (66 days)	380	about 80
Sell 1 call	Feb 20 (10 days)	435	about 17

The long call cost about $45, or about $4,500 for one contract. His comparison: 100 shares make $100 for every dollar Microsoft rises, on about $41,000 of capital. The 80-delta call makes about $80 per dollar at first, rising toward $100 as the stock climbs, on a fraction of the capital. The whole diagonal cost about $4,300.

That is a long diagonal: different months, different strikes. Dan described it as starting out about 80 deltas long, and compared that with a covered call that sells a 20-delta call against 100 shares, which is about 80 deltas long as well.

Managing it on the way down

If the stock drops, Dan handles it the way you would a covered call: buy back the short call and sell another one further out at a lower strike, such as moving from the 435 to the 430. With 66 days on the long and 10 on the short, there is a lot of time to keep selling calls to pay down the cost of the long while waiting for the stock to rise.

In the model, he noted, the potential yield was a lot higher than the roughly 1% a month people have historically gotten from covered calls.

Trade 3: the out-of-the-money diagonal ($1,300)

To get even cheaper, Dan moves both strikes out of the money:

• Long the 425 call, 66 days out
• Short the 430 call, 10 days out (about 24 delta, roughly a 24% chance of finishing above 430)

With Microsoft around 416, this cost about $1,300. In Dan’s words it is “a little bit country, a little bit rock and roll”: part diagonal, part calendar. He calls it an out-of-the-money long diagonal.

At entry, the model showed the position at about 23 deltas long, with positive theta (the short decays faster than the long) and long vega.

That long vega matters. Dan moved the model forward seven days, from February 10 to February 17. In the model the trade did best on the way up, but he then looked at a drop. Since volatility usually rises when stocks fall, he raised implied volatility in the model to show how long vega helped the position as volatility popped. The drop in the stock still weighed on it.

Trade 4: the at-the-money diagonal (about $1,500)

For a more conservative version with about the same capital, Dan shifts both strikes closer to the stock:

• Long the 415 call, slightly in the money
• Short the 420 call

The model showed about 12 deltas long, at a cost of about $1,500. That makes it less long than the out-of-the-money version, with a slightly wider break-even on the downside for similar capital.

The four trades side by side

Trade	Long	Short	Approx. cost
Covered call	100 shares at about $417	435 or 420 call, 10 days	$41,000
Stock surrogate diagonal	380 call, 66 days	435 call, 10 days	$4,300
Out-of-the-money diagonal	425 call, 66 days	430 call, 10 days	$1,300
At-the-money diagonal	415 call	420 call	$1,500

Using the modeling tool

Dan says he is “not a computer guy” and finds Option Omega’s modeling tool intuitive. He singled out how it shows the volatility of each strike in mixed-month spreads, which he said he had never seen before. In the demo he changed the date, the stock price and implied volatility, and checked how delta changed as the stock moved up or down, all before entering a trade.

Key takeaways

• On February 10, 2026, a covered call on MSFT at about $417 tied up about $41,000.
• Dan used an 80-delta call 66 days out as a stand-in for the shares. The resulting diagonal cost about $4,300.
• An out-of-the-money diagonal (long 425, short 430) cost about $1,300 and was about 23 deltas long.
• An at-the-money diagonal (long 415, short 420) cost about $1,500, with about 12 deltas and a wider downside break-even.
• In Dan’s model, rising implied volatility generally helped the long-vega diagonal on a drop. Price movement can still outweigh that benefit.
• With weeks between the two expirations, Dan pointed out there is room to keep selling short calls against the long.

You can build these diagonals and step them through time, price and volatility with Option Omega’s modeling tools. For more on diagonals, see Long Diagonals with Tom and Dan, and for a ratioed version on Tesla, see Tesla options trade ideas with Erik. Start a free trial to try it.

Watch the full video: $41,000 vs $1,300 — A Former CBOE Market Maker’s Take on Covered Calls (MSFT).

Trades in this post were modeled, not backtested. It is educational only, and options trading involves substantial risk.