Welcome to Simple Spreads

[cwelsh 1,276]

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:


 

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?

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

 

[FrankTheTank 718]

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.

  

 

[Dennis Wood 1]

Example setups and risk graphs are for current paying members only 😂

[Kim 6,599]

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.

[FrankTheTank 718]

1 hour ago, Dennis Wood said:

Example setups and risk graphs are for current paying members only 😂

Hard to pay money for something until you know what that something is but I will check it out. 

1 hour ago, Kim said:

First trade and trade discussion posted on the forums.

Thanks will check it out. 

Edited January 7, 2021 by FrankTheTank

[Kim 6,599]

On 1/6/2021 at 5:44 PM, Dennis Wood said:

Example setups and risk graphs are for current paying members only 😂

It has always been our policy that paying members get the initial free access to any new service. It's our way to thank them for their loyalty. Subscribe to any of our services - and you will get access to SS forums as well.

[Troy Mclure 29]

Thank You Kim for respecting the members with you unwavering post

 

Troy

[Tamas 15]

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

[Kim 6,599]

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 89]

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 0]

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]

We have seen numerous people get into the trade well after the trade was posted, sometimes later the same day or even the next day.  I think trading toward the end of the day should not work against you, I would stick to price when entering.  

[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.

[TradeBobby 7]

Hi @MMorriss,

The model portfolio is based on a 25k allocation.  Is there a max you would use to trade in this account before liquidity might become a problem?

 

Thanks!

[longmanzz 0]

10 hours ago, TradeBobby said:

Hi @MMorriss,

The model portfolio is based on a 25k allocation.  Is there a max you would use to trade in this account before liquidity might become a problem?

 

Thanks!

same question here, as well for the other two Lorintine products. It sounds all 3 products are ideal for 25k+/50k+ portfolios. but what are the upper bounds in terms of portfolio size 

[Kim 6,599]

9 hours ago, longmanzz said:

same question here, as well for the other two Lorintine products. It sounds all 3 products are ideal for 25k+/50k+ portfolios. but what are the upper bounds in terms of portfolio size 

Anchor and PutWrite trade the most liquid ETFs like SPY, IWM etc. so there is definitely no limit there.

SS should be fine too (as long as you don't trade multi million dollar account) because it trades mostly higher priced spreads, so you don't need large amount of contracts even for $300-500k accounts.

[Windeon 10]

@MMorriss Could you also add an explanation of the hedge vertical bear put spread parameters used  in SS.

Same as you did for the leveraged call?

Thank You

[Noah Katz 89]

On 2/14/2021 at 9:16 AM, MMorriss said:

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.

 

Thanks for the explanation.

Looks like this bull has more legs, so l'm going to give it a go.

[Noah Katz 89]

On 12/27/2020 at 2:48 PM, cwelsh said:

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).

How does, say, keeping $10k in cash out of a $25k portfolio reduce risk more than just saying you're going to use this strategy with $15k of capital?

 

Makes sense if $25k is one's total portfolio, but otherwise it seems like the portfolio gains are diluted by 40%.

[MMorriss 164]

1 minute ago, Noah Katz said:

How does, say, keeping $10k in cash out of a $25k portfolio reduce risk more than just saying you're going to use this strategy with $15k of capital?

 

Makes sense if $25k is one's total portfolio, but otherwise it seems like the portfolio gains are diluted by 40%.

We also keep each trade to around 10% of the portfolio.

[Noah Katz 89]

1 hour ago, MMorriss said:

We also keep each trade to around 10% of the portfolio.

 

Yes, but I'm still not grasping the purpose of all that unused cash.

[Kim 6,599]

2 minutes ago, Noah Katz said:

 

Yes, but I'm still not grasping the purpose of all that unused cash.

The purpose is not to over leverage. There is a dedicated topic about it on the members forum.

[Kim 6,599]

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.

[NP2020ww90m 22]

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 6,599]

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!

[Dael 1]

Hi folks,

@MMorriss
Can you please share how do you calculate 10% per trade investment size? Is it based on total PMCC price (i.e. long LEAP call price minus short CC price)? And what are average margin requirements on PMCC and bear put spread? I wanna know what minimal account size fits for SS strategy. Can I open all your positions with 5k account? 10k?

@Kim
Can you please help with Paypal issue? This error is for any SO subscription I've tried here https://steadyoptions.com/subscribe/. I'm an ex-SO member, had a main SO subscription sometime ago.

[MMorriss 164]

5 hours ago, Dael said:

Hi folks,

@MMorriss
Can you please share how do you calculate 10% per trade investment size? Is it based on total PMCC price (i.e. long LEAP call price minus short CC price)? And what are average margin requirements on PMCC and bear put spread? I wanna know what minimal account size fits for SS strategy. Can I open all your positions with 5k account? 10k?

@Kim
Can you please help with Paypal issue? This error is for any SO subscription I've tried here https://steadyoptions.com/subscribe/. I'm an ex-SO member, had a main SO subscription sometime ago.

Yes, we take into account both sides of the spread when calculating the investment size.  For example, if we buy a long call for $10 and we sell a short call for $3 then one contract would cost us $700.00 ($10 -$3 * 100).  On a $25,000 account we would then purchase 3 spreads for a total of $2,100 or 8.4% of the $25,000 account.  The spreads have a defined risk, in this example the entire $2,100 would be at risk but nothing more.  In doing so, there is no margin used.  You can definitely trade a smaller account, in the example above you would purchase 1 spread on a $10,000 account for a 7% allocation.  The downside is there will be trades where 1 spread will cost approximately $2,500, in those cases you could skip that trade and wait for the next one.

[IgorK 98]

I am in!

[No1KCfan6 4]

Is it okay for me to ask this question here?  I'm assuming I don't need top options trading privileges at my brokerage with the types of strategies that are used with Simple Spreads.  Any nakeds?  Thanks!

[Kim 6,599]

Spreads only. No naked options. I believe you need level 3.

[No1KCfan6 4]

Thank you.  Different brokerages use different numbers.  Schwab uses 0 - 3; Etrade is 1 - 4, etc.  I have level 2 at Schwab

Edited April 19, 2021 by No1KCfan6

[Tonio 0]

Are there any back tests for this strategy? @cwelsh @Kim

Edited August 26, 2021 by Tonio

[candreouTrade 59]

Are the 2 trades that make up this portfolio done on the same underlying stock? That is, do we open the vertical and covered call on the same underlying?

[Kim 6,599]

No.