Why I Trade The LT112 Strategy - Original Trade Plan Training
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- Опубліковано 6 чер 2024
- This is the original training video for the Mr Top Tick Income Navigator service showing how and why I moved from the weekly 112 trade strategy to the LT 112 trade strategy.
The LT112 trade is an improved and more efficient way of generating income by selling a combination of put options and using the premium collected as either an income trading source with a bit of kicker.
In this video I cover:
1. The standard 112 trade setup
2. The original weekly 112 strategy
3. The Long Term 112 trade setup
4. The Monthly LT112 trade
To see my live trades and for more advanced trading education, visit us at mrtoptick.com/income-navigator.
Whether you are a seasoned trader or just starting your journey, this video will provide valuable insights and recommendations on which trading strategies to add to your portfolio. With the right trading plan, you can achieve your financial goals over time.
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DISCLAIMER:
Not Financial Advice, this content is for Entertainment and Educational Purposes Only. All financial decisions made by the viewer should be done after talking with a licensed professional.
Tom have you back tested how these might do in a 2008 scenario? Can you make a video on how you would trade these in a 2024 recession or maybe you trade a different strategy in a down trending market. Short of a crash the larger credits from higher IV might make this still viable as long as the market decline is more gradual.
Awesome video, I’ve been trading long dated strangles for years now but after watching this video, I’m gonna go with the 112. This video is priceless. If you are interested in income and sleeping at night this is the strategy to use! thank you!
IIRC, most all ES futures options are European exercise which means no early assignment risk. Only get hit if you get through expiration date and the naked puts are ITM. Margin would definitely increase on the pullback. Neat approach. Management is important as to not get in a bind. Take off risk especially if locking in profit/getting paid to do so. Well done!
Very helpful , thank you
Tom...this a great strategy. I have been selling ES or MES strangles the last year and a half at around 100 to 120 DTE. The hedhe I use is a 100 wide Put Spread at 35 dte. At 100 days your 50 wide hedge will not be enoughto hedge 2 puts in a market crash. Even if deep in ITM. You might be able to do around 70 dte but 120 is too far out for the hedge.
I like this. I’m going to put one on this week. Not financial advice :)
Great strategy,. Tom... and great option teacher...
Are there any specific optimal conditions that you look for in order to trigger your LT112 (volatility, strong price down move, etc.)?
Thank you for your generosity sharing your knowledge.
As you said, not many people share their real numbers...
Kind Regards
Hi Tom!! Just discovered you and your content. Very interesting. Quick question. Do you use a stop loss on the 112 trade? Like 1x the credit or something? Do you have an exit strategy if things get really ugly? Just curious. Thank you for sharing your content with the rest of us. I really appreciate it. Dan
Thank you very much. This is an excellent strategy that I will be using up to 30% of my buying power going forward.
This is gold
Mr. King did you trade this strategy, or the original 112, during the 1st. Quater off 2020? And with what result because I would be very worried about the vega risc. Perhaps you could do a video about that?
I modeled this out on SPX in IB 120 DTE, 2K ish credit takes 30K+ margin.
Great video, question regarding your strategy, when it comes to closing the LT112 can you close the whole trade at once? Say you are up 89% and you are happy with that profit, can you close the whole position out and start again? There is a lot of talk about closing out in parts eg: close the naked puts and leave the PCS open… thanks.
Great video Tom. If I have less BP can I use the SPY instead of the /ES?
Yes you can! But MES would be the better choice.
Great video and explanation, Tom. Quick question. Why do you use BP to measure % returns rather than the actual assignment risk (i.e. the entire underlying's value)? For example, if the "2" is SPY at 360, why do you use BP to measure the returns and not $72000 ($360 * 2 * 100)? Thanks.
I'm playing around with SPY also, but it just doesn't seem to work. Tom has previously talked about the advantages of ES. I"ll have to get my future accounts set up for this.
Tom, Great content and thank you for sharing.
%Annual return is bit misleading tho. I think, this should be based on total net liq based on 50% buying power. By this, return expectations should be around.. 20..25%.
My returns are far above those numbers and over 80% in 2022.
Hi Tom, great video and strategy. Im tying to enter this trade to my tastytrade account but will not allow me. It wants me to leg it? How should I proceed with the entry then? naked put firsts before the debit spread? Or it does not matter?
I appreciate your response. Many thanks and kudos to your strategy.
Hi Tom, great video!
Quick question, why are you choosing 25 delta to enter your debit spread?
Wouldn’t it make more sense to buy a put first at 35-40 delta to enter the debit spread and still sell 2 naked puts at 5 delta?
Yes, slightly less in premium given, but there is a much greater chance to enter a trap thus collecting more premium?
Or do you simply adjust your debit spread entry depending on the bullish or bearish market outlook, with lower delta on the bullish side?
The main goal is income, Markets drift up most of the time. I do adjust the width of the PDS and also the distance of the naked puts depending on market conditions though.
Do you have a video that shown how you manage the trade when it's against you?
Hey Tom, is there Theta Decay is ES futures options? normally i rely on that when i put strangles. thank you.
Hey Tom! Love your videos. I just found Joseph a few days ago and he talks about you a lot and recommends people to check out your channel so I did! I'm just curious about a few things. The first one is, is the 120 DTE 1-1-2 what you still use today? How many losing trades have you had using this strategy so far? I know your stop loss is the max trap profit, so if I'm understanding correctly, if the P/L of the trade at any point is equal to or greater than the max profit you close the position? Also, when you say "using two contracts" are you saying you're still only putting on one trade per month but doing a 2-2-4 to get $2,200 per month? Thanks!
One trade every other Wednesday is 2 contracts per month.🍺🍺
Which broker let's you short two /es for only 8000 margin to setup one 112? on interactive brokers I need around $19.8k margin for 60 dte /es 112
Hi Tom! If for example in 5 days the trade reach around 30% profit, can i close it and open a new one? Do you do that?
Thanks for the info on the video, but still I have one doubt, not sure if you have covered already on other videos.
In case is needed to hedge/defend this strategy against fast drop and IV spike, specially in the beginning of the trade, what ways you use to do it?, buying teenies, vertical spreads, etc..
Just use a stop loss
Cut loss and move on, before the exchange and/or your broker increase your margin requirement by 10x and auto-liquidate your legs, or even leave you a negative net liq...
I see in the 120 Dte example the max profit is 3,725. If you let it all expire in the money and take assignment of the naked puts, do you still get the 3,725 cash?
Hey Tom (or anyone else for that matter), how do you estimate the buying power necessary on any given trade? How did you come up with the $6000 BP requirement for your 112 trade? I put one on this morning and the initial buying power was much lower than 6000. Is there a multiplier you're using to calculate it?
I use the BP Effect from my trading platform. As I am planning the trade and setting it up, I simply record the BP Effect from the platform to make sure I am staying in line. For me, 2 naked ES puts are around $6k in BP
@tomking13 having a tough time getting the 2 sold puts filled, the PDS gets filled pretty easy, any tips?
1. Do you run this strategy even in this low vix environment?
2. Why do you call it naked put? Since you're putting up the ( span) margin, isn't this technically cash secured?
3. What you do with your 50% not being used for option income strategies? If I'm holding, say, qqq with that 50%, would you recommend selling covered calls to juice more returns?
Yes, I run strategy no matter what the IVR. I apy no attention to IVR on mechanical trades. 2. It is a naked put and is not cash secured. It is subject to span margin. 3. The unused 50% is there for safety in a SPAN margin increase. I do not write covered calls since I do not own any stocks.
Hi Tom, great video. I noticed that you were able to open 1-1-2 trade simultaneously on Tasty. Any idea why I am unable to do so on Tasty? I can do 1-1-1 but unable to change the quantity of sell put at delta 0.05 to 2 sell puts. Do I have to leg in the extra sell put separately? Thanks in advance
He did not open this trade. He just analyzed it. Tasty requires this to be 2 transactions not all in one.🍺🍺
How do you know which expiration to use for the underlying futures contract you are selling options on?
120 DTE🍺🍺
@TomKing13 great video. I haven't seem to gotten answer to one question though. Initial BP when you open the trades is $8k for 60DTE and $6k for LT112. But when market moves against you in the first few days, the BP expands. It is not going to remain $8k and $6k respectively. Assuming that this happens, how do you factor in the increased BP?
Thanks in advance!
By using only 30% of your buying power. That way you still have 70% of your buying power in the event of margin (BP) expansion during market declines.🍺🍺
Just curious how would 1/3 ratios compare to 112 spreads ? It seems like the 112 trap will not help you until late in the expiration cycle, while ratios could profit much sooner, at least at first glance….. Have you tested this ?
I have not tested that. I am not a huge fan of ratio spreads except as a hedge. But that is just me. I seem to land in the "Valley of Death" too often.
Dear Tom, great content, I tried to put a trade on the tastytrade platform but the strategy is not accepted (sufficient BP available) did you face similar problems, if yes what might be a solution ... Thank you in advance
On TT you have to leg into 112 trades. Place the PDS first and then place the naked puts in a 2nd trade.
@@TommKing13 Thank you very much ... Tom
Have you ever added the call side to these? Thinking the buying power would not change. Just interested in why not to do the call side.
Sometimes in a very bullish run with a week or two of opening them. Yes, the 1122 is when I add 2 short calls on these. I manage those calls as a separate trade.
@@TommKing13 Thanks for the reply. Can you explain if it is better to put these on in a good down day or does that have any bearing on the amount of credit one would receive. Seems with the extra two shorts one would gain more premium if vol is up on a down day. Am I off base in thinking that way?.
If the price comes below the put strike what are the defense strategies? it is possible to close the trade before this point with profits or this kind of trade is letting until expiration?
I have a stop loss of 1X the max profit or I can take assignment or I can roll out and down. Plenty of options to adjust or exit. Also, since I close the naked puts at 95%, I remove a lot of risk.
quick question tom I get the LT112 what's a BA112 (what does BA stand for)
One other question about the weekly strangles.
Do you still put them on In low volatility environments. And if so, do you make any changes to the rules?
I do not pay much attention to vol. I dont care about VIX and dont really look at IVR either.
@TommKing13 The reason I asked is that I set up to see what a trade would look like for the weekly strangle in m e s closest to 90DTE and the credit was only about 13.75
When I load this order into SPX (using TOS) for just on contract on the put spread and 2 contracts on the short put the Buying Power required is $96,000… any thoughts ?
What if the /ES drops below your Short PUTs? Would you be assigned 2 contracts?
Yes But it would take a 20% drop to get there.
Hi, i am getting around 4x the BP required for LT112 on es which leads to the strategy not providing enough ROI, how do you get such different BP requirements?
Hi Tom, I don't quit get it for the benefits of 120DTE vs 60DTE. Yes, you are right that 120DTE generates more income with less BP, but the issue is it requires double the time of 60DTE to do so which ended up generate less income than 60DTE in 1 year time frame with the same BP. 60DTE is more efficient than 120DTE in view of BP utilization. What are the benefits of 120DTE? Have I missed anything?
Yes, we can see at around 15:00 that he would bring in 4k over 2 months (64k BP) with 60dte and 4.4k over 4 months (24k BP) with 120dte. But he looks to do 2 contracts of the 120dte (or 2 positions per month, 1 every other week) This uses 48k BP and 9k over 4 months compared to 8K over 4 months with 60dte.
Can someone please give me a link where I can get more ide about how to place orders this GM is executing. I don't have a clue how he places his trades...thanks.
how do you put these on? I tried, using Tasty. I get an error Price effect is not correct for this strategy. It rejects my order.
I put one of these on about a month ago. It is up approx. 72% of max profit on the tail. Would it be better to keep this trade on until expiration or close this out and open a new position further out?
I want to let it go longer. However, you can close the naked puts only for 90-95% winners! Then leave the PDS running as a hedge!
@@TommKing13 thanks. I'm still trying to wrap my head around getting a 5-10% return in a month! Thanks so much for sharing this strategy. It's a total game changer.
WOW,...very interesting. Did a "Flash Crash," ever cross your mind when placing these?
Lol, I am pretty sure that Tom probably have thought of that:) . You do have a bit of protection with the debit spread (I would say about 14-17 %) but once you ladder in the number of trades in conjunction with your net liq you will see that if flash crash happens, the old trades are actually going to make more money as they will get in the bear trap. Now, the newer ones will have a few losers but with solid rules like stop loss at 3x premium received and closing out the shorts at 90% profit, you are looking at average of 36% a year. It has been backtested through 2020. It’s solid strategy and actually quite conservative. Add strangles to increase return on margin and you should be consistently looking at 50% a year. Another thing to consider, using only 30% of your buying power is crucial. Even if margin expands, with proper sizing you will still be winning consistently the end because you can sustain the volatility expansion and once it snaps back down, your positions will be in profit. Hope this helps, cheers
Great answer...saves me time to type that
Hi Tom. My tastytrade is giving me an invalid strategy error. It won’t let me send the order in. Any idea? I asked support and they gave me a big blurb about CME …
I seem to recall that futures in an IRA takes 2x SPAN/BP at Tastytrade. Can you confirm please?
Yes pretty much. I trade the 112 in my TW Roth. You can trade MES with 5-6k min but if you want to trade ES you need 25k min balance. TD doesn’t even allow you to trade MES if you don’t have 25k in your IRA. BP for a LT112 with MES in an IRA requires around 1,400 BP. In regular account it is around 700. I did some compound interest calculations considering that the 112 should yield around 36% a year but if you do it in IRA you are probably looking at around 18%. In the long run it seems that even considering the taxes you would make much more in regular account.
when do you close these trades as you put on every month ?
Watch the video
What is the biggest risk of this strategy?
Is the 6K margin on ES LT112 shown in the video using portfolio margin or regT?
Futures use SPAN margin. Look up how your broker implements it for whatever type of account you trade.
SPAN margin.
Sir,
Good evening
Please clear my few doubt
1) when shift 25 delta put ?
2) hold naked put till 95% premium melt, so naked put is fixed, shift 25delta put buy & sell put
When profit booked 1% werkly?
You dont need to touch on the put debit spread after your place it, you manage your trade (take profit or loss) with the naked portion of the puts, you can leave the spread part alone working as a hedge for the later downside
@@johto thank u sir🙏
For smaller accounts can the
l t 112 work well with MES?
Absolutely. I run a 10K portfolio for members and use them as the core with MES
@TommKing13 thank you.
Not sure if you saw my other question somewhere about whether you can do the weekly strangles in a low vol environment?
@@TommKing13 Thank you. Do you offer a lower monthly fee for access to the 10K portfolio?
I am very interested.
Have you every thought about a 1-1-2 strangle?
Is there a way to hedge against a black swan event in this trade?
Hi Tom, question. why 112 and not 113?
I cant seem to get the same BP requirements you get using an IBKR portfolio margin account. For the ES 112 example my margin requirement is 18k instead of 8k. I will try to throw on a trade Monday and see if it’s just a problem with the app calculating incorrectly. Anyone else do these trades on IBKR?
IBKR has different margin requirements than TOS or Tastytrade.
@@Timocraat I have an IBKR portfolio margin account and just put on a 112 ES 117DTE for a $1044 credit. IBKR requires 16k initial and 13k maintenance margin to put the trade on. So 8% return. Definitely not as good as Tasty’s 8k margin requirement.
I wonder if I should apply for tasty. I've been mostly doing cash secured puts this year, and I just got approved for spreads on Schwab. I don't think I can execute the 112 strategy at all until I have more permissions.
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On the first half of this video, ok I follow the math of how portfolio returns pile up . What I find hard to grasp is that he is assuming every individual trade wins, every trade succeeds, with a perfectly predictable ROI. Perfect 100% success rate trades??? That's hard to accept.
He is closing the losing trade at 1x of the Max profit in the trap if it goes the other way.
For example, if you are getting $100 in the Tail and $300 in the trap in premium, should the trade go against you, you will close at -300$ yourself
I think alot of the math. is incorrect here. Firstly, you would be making $8k on $64k over 4 months vs $4400 on $24k over 4 months. Which is a %12.5 return vs a %18.33 return. So the ROC is still much better for the LT's but you need to be more accurate. Secondly, you're not actually considering the true ROC because the capital used for these trades are twice what you've listed since you only use %50 of BP for a trade. So, realistically, you're returning %6.25 on $128k and %9.17 on $48k over 4 months. So, in none of these instances are you making %50 a year on total account balance because if you double the contracts you double the total acct balance required. You don't double you're return, thats just silly and misleading. You're still beating the market pretty handedly if you're making %25 ROC a year though.
What's the risk if he loses a trade?
He said if you had 130k ud make 18% by using 64k of buying power instead of 37.5 of using 100% of 64k buying power
15:03 I agreed with you for a minute, but you have to look at it in a different way. He’s doing this in a rolling fashion. In other words, at all times he has $24,000 of BP in use which is generating $1100 a month. Compare this to $2000 a month on $64,000 BP. He is not claiming you only need $24,000 to get $1100 a month. He is just saying it’s a better return on capital.
Hi Tom, my TastyWorks platform does not seem to support this order type i.e. the 1-1-1, or the 1-1-2, I am getting a message xThis strategy is not supported. Try legging in (Invalid strategy) do you have any suggestions pls?
@TommKing13
Tom already answered this question: "On TT you have to leg into 112 trades. Place the PDS first and then place the naked puts in a 2nd trade."