SteadyOptions is an options trading forum where you can find solutions from top options traders. Join Us!

We’ve all been there… researching options strategies and unable to find the answers we’re looking for. SteadyOptions has your solution.

cwelsh

Welcome to Simple Spreads

Recommended Posts

What are Simple Spreads?

One of the challenges of Steady Options relates to the amount of time the trades take and the difficulty understanding them.  We have listened to our members and are creating a new strategy for the space called “Simple Spreads.”


Simple Spreads is just that – much simpler trades, that take less management, easier to enter, and easier to manage.  We have added two new contributors, Marcus Morriss and Parker Edmiston who will assist with the service.  Christopher Welsh will also be contributing.


Marcus and Parker are the ideal leads for the new strategy as they each have been actively trading the Simple Option strategies in their own personal account, for profit, for over a year.  In a coming post, they will each publish the last year of trades and the results from each.  As with most Steady Options strategies, the results speak for themselves.


The Simple Options Service highlights

  • 4 – 6 trades per month
  • Trades which are not as time sensitive as the core Steady Options strategy
  • Ideal for smaller accounts
  • Targets trades with a large margin of safety with an average profit target of 5% to 10% per trade
  • Trades that naturally hedge against each other (e.g. profit by markets moving in different directions)

 

The Strategy

Simple Spreads is made up of two “core” trades, a leveraged covered calls (our version of diagonal spreads) and vertical spreads.  Due to the higher risk of the vertical put spreads, they will make up a smaller percentage of the committed capital.  As additional risk management, large portions of the strategy will be in cash at any given time (e.g. you will never be fully invested). 

The leveraged covered calls is basically what some traders call Leverage With A Poor Man’s Covered Call. The strategy is similar to covered calls, but the stock is replaced with DITM calls.

 

The model portfolio is $25,000. The Strategy is structured to run on accounts of $25,000 and greater, but many (if not most) of the trades will work on smaller accounts.


Leveraged Covered Calls (2x to 4x the position size of the Vertical Put Spreads) / Also known as Diagonal Spreads

  • Step 1 – Identify a stock that meets our metrics and setup
  • Step 2 – Purchase a deep in the money long dated call (near 90 delta or higher and 6-9 months out) on an identified stock 
  • Step 3 – Sell a call against the deep in the money long dated call 3-6 weeks out


Here is how a typical setup would look like:

image.png
 

Vertical Put Spreads (less committed capital than the Leveraged Covered Calls)

  • Step 1 – Identify a stock that meets our metrics and setup
  • Step 2 – Buy a vertical bear put debit spread

Those spreads are likely to be used to hedge the bullish diagonals.
 

Assignment risk
 

One of the frequent questions is: what happens if the stock rises and the short calls become ITM? Is there an assignment risk?

The answer is that assignment risk becomes real only when there is very little time value in the short options. This will happen only if they become deep ITM and we get close to expiration. When it happens, we will usually roll the short options or close the trade. In any case, this is not an issue because even if we are assigned short stock, the short stock position is hedged by the long calls.

In case of the upcoming dividend, there is some assignment risk only if the remaining time value of the short calls is less than the dividend value.

Of course there is no assignment risk if the calls are OTM or around ATM.
 

Why Simple Spreads?

There are dozens of services that identify covered calls and vertical put spreads to trade.  We’re different in that (a) by pairing it with vertical put spreads we reduce market risk as the two trades profit in different market conditions, (b) by using leveraged covered calls, we increase potential returns, widen our profit window, and reduce the amount of capital necessary for such trades when compared to traditional covered call spreads, and (c) we use more than just simple “filters” to pick our stocks, using a combination of fundamental analysis, technical analysis, and momentum in picking trades.

The forums will also provide an ideal location for new options traders to begin grasping and trading both introductory and more complex options strategies without having to be tethered to a computer.

Where can you find the trade and the trade discussions?

Here is the trading history of 2020 (before Simple Spreads was launched):

Untitled.png.29f54f88eea5b745e1000c3cb664e25e.png

The current list of all trades since inception is available on members forums.
 

Here is the summary of all subscription options:

  1. Simple Spreads (SS) is a separate product. If you want to have it as a standalone subscription, please use of of the links on the subscription page.
     
  2. SS is included in the Lorintine Bundle along with Anchor and PutWrite. 
     
  3. The 2 services bundle includes any 2 services of your choice. It does NOT include all the services from the Lorintine bundle. 

 

Share this post


Link to post
Share on other sites

This sounds very interesting.  Thanks for sharing.

Are you diagonals and put verticals on the same underlying?   If so, is this mostly a directional play (leveraged deltas)?   Would love to see some example setups and risk graphs when you have time.

  

 

Share this post


Link to post
Share on other sites
23 minutes ago, FrankTheTank said:

This sounds very interesting.  Thanks for sharing.

Are you diagonals and put verticals on the same underlying?   If so, is this mostly a directional play (leveraged deltas)?   Would love to see some example setups and risk graphs when you have time.

  

 

First trade and trade discussion posted on the forums.

Share this post


Link to post
Share on other sites

We have decided to provide an extra free month to all current members, so Simple Spreads will become a paid service on March 1st. As a side note, it will be also included in the Lorintine Bundle at no extra charge. The bundle is currently offered at $895/year which is already an incredible value (it includes Anchor Trades and Steady PutWrite, total of 6 different model portfolios). The price will go up to $1,095 on March 1st.

As usual, current members are always grandfathered at the rates they signed up as long as they keep an active subscription.

Share this post


Link to post
Share on other sites
18 hours ago, Kim said:

Yes

 

OK thanks.

The description says the strategies naturally hedge each other, but I have to wonder at the amazing performance when the S&P has risen 62% during the trading period.

Any idea what would have happened in a stagnant or falling market?

Share this post


Link to post
Share on other sites

Based on my location/timezone and lifestyle (full time job) I could only realistically place trades towards the end of the daily market session. What are your thoughts on being able to effectively follow this strategy with that limitation? This looks like a great service to learn from; I've studied and paper traded for many years but now finally have spare capital in portfolio to start dedicating some to options trades.

Share this post


Link to post
Share on other sites
On 2/12/2021 at 3:04 PM, Noah Katz said:

 

OK thanks.

The description says the strategies naturally hedge each other, but I have to wonder at the amazing performance when the S&P has risen 62% during the trading period.

Any idea what would have happened in a stagnant or falling market?

Noah - stagnant markets we can handle, if the stock goes sideway or even slightly down this strategy works great.  

If we have another market selloff like last March 2020, the strategy is expected to lose money.  This is why we try to generally be 40% invested and only in a trade for approximately 10% of the portfolio.  This will significantly reduce our exposure to a market selloff.  

On the flip side, this strategy will work great after the selloff.  As we saw in 2020.

Share this post


Link to post
Share on other sites

This is a friendly reminder that free access to SS forums ends on Sunday. Members who wish to join are welcome to use one of the links on the subscription page or join the Lorintine Bundle (which includes Simple Spreads along with Anchor and PutWrite). At $895/year, it translates to less than $25 per month per service. We are basically giving it away at this price. The price goes up to $1,095 on March 1st and is expected to increase to ~$1,500 later this year.

Share this post


Link to post
Share on other sites
16 hours ago, Kim said:

This is a friendly reminder that free access to SS forums ends on Sunday. Members who wish to join are welcome to use one of the links on the subscription page or join the Lorintine Bundle (which includes Simple Spreads along with Anchor and PutWrite). At $895/year, it translates to less than $25 per month per service. We are basically giving it away at this price. The price goes up to $1,095 on March 1st and is expected to increase to ~$1,500 later this year.

@Kim I assume that subscribers to the All Services Bundle will get Simple Spreads included? From the Subscribe page: "The Bundle subscriptions include all current and future services." Just want to be sure as I have really liked this so far and don't want to miss out.

 

Edited by NP2020ww90m

Share this post


Link to post
Share on other sites
2 hours ago, NP2020ww90m said:

@Kim I assume that subscribers to the All Services Bundle will get Simple Spreads included? From the Subscribe page: "The Bundle subscriptions include all current and future services." Just want to be sure as I have really liked this so far and don't want to miss out.

 

Absolutely!

Share this post


Link to post
Share on other sites

I see that for some months this strategy returned 0.0% (March, June & October 2022), is this because there is a prevention strategy for losses or simply because there were no positions open during those months?

Thanks

Share this post


Link to post
Share on other sites
3 minutes ago, Kim said:

No trades closed in those months. 

Thanks Kim, so if no trades were closed, the strategy performed well it seems (as SPX in those months was declining). Does the strategy have any prevention against a deep bear market?

 

Share this post


Link to post
Share on other sites

Well, some of the open trades were in red, but we were waiting for recovery. The main risk management is position sizing - we usually don't allocate more than 50% of the account.

But yes, the strategy is up1.5% YTD while the markets are down 20-25% - I would say it's pretty good, considering that this is a LEVERGED BULLISH strategy.

Share this post


Link to post
Share on other sites
On 2/12/2021 at 4:04 PM, Noah Katz said:

 

OK thanks.

The description says the strategies naturally hedge each other, but I have to wonder at the amazing performance when the S&P has risen 62% during the trading period.

Any idea what would have happened in a stagnant or falling market?

Going back to this question from 2 years ago, I believe 2022 provided a very convincing answer.

While S&P 500 was down 20% and Nasdaq 33%, our SS model portfolio produced a 2.1% gain. Considering the bear market, and the strategy being a leveraged bullish strategy, I would consider this result beyond amazing. Thank you again @krisbee for navigating the trades through this challenging market!

Share this post


Link to post
Share on other sites

Hey Guys!  I am having a hard time reconciling my P&L to the official.   I looked at the official P&L and tried to get the same compound e.g. 0.4% compounded for 2021 and must be doing the math wrong on misunderstanding what is meant by compounding.   Can you see what I am doing wrong?  Numbers are for 2021.  Thanks!

SimpleSpreadsReturns2021.JPG

Share this post


Link to post
Share on other sites

Thanks for the prompt response Kim.   I fixed November but still get a compounded loss of 1.16%.   I don't know what I am doing wrong.   Do you publish the Simple Spreads results for individual trades like you do for Steady Options?   That data would help me figure out what's going on.   Thanks.

SimpleSpreadsReturns2021.JPG

Share this post


Link to post
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account. It's easy and free!


Register a new account

Sign in

Already have an account? Sign in here.


Sign In Now

  • Recently Browsing   1 member