Welcome to Simple Spreads

[Kim 8,087]

What are Simple Spreads?

The strategy description has been provided by Chris Welsh.

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.  

The Simple Options Service highlights

• 2-3 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 leveraged covered calls (our version of diagonal spreads). 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:


 

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?

• Simple Spreads Trades
• Simple Spreads Discussions

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



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 Collars. 
    
3. The 2 services bundle includes any 2 services of your choice. It does NOT include all the services from the Lorintine bundle. 

 

[FrankTheTank 840]

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.

  

 

[Kim 8,087]

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.

[Troy Mclure 31]

Thank You Kim for respecting the members with you unwavering post

 

Troy

[Tamas 37]

My question is, how much DD are expected? What shows the backtest data? thanks

[Kim 8,087]

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.

[Noah Katz 90]

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?

[cwall 1]

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.

[MMorriss 164]

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.

[Kim 8,087]

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.

[PalmerK24 27]

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 February 27, 2021 by NP2020ww90m

[Kim 8,087]

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!

[IgorK 114]

I am in!

[josef458 6]

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

[Kim 8,087]

No trades closed in those months. 

[josef458 6]

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?

 

[Kim 8,087]

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.

[Kim 8,087]

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!

[z0ned 2]

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!

[Kim 8,087]

Model portfolio is $25k not $10k, and Nov. return is 0.2% not 0%. 0.4% was calculated by my spreadsheet.

[z0ned 2]

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.

[Kim 8,087]

Could be due to rounding error because we post only 1 decimal number. For example, January was actually 1.51, we posted 1.5. February 5.64 we posted 5.6.