Summary of "How to Trade the 111 Strategy - Complete Guide to the 111 Trade"

Overview: The “111 Strategy” (Original Gangster / OG)

The video explains the “111 strategy” (also called the Original Gangster / OG trade), an options-based, systematic income + semi-hedge strategy. The payoff is built around:

• A put debit spread (long put spread)
• A further-out short put to shape a defined upside/downside profile

The speaker emphasizes:

• Mechanical rules
• Limited monitoring
• Portfolio and risk sizing

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Instruments / Underlyings Mentioned

Options / indices / ETFs / futures

• SPX (S&P 500 index)
• SPY (S&P 500 ETF)
• ES (E-mini S&P 500 futures)
• MES (Micro E-mini S&P 500 futures)
• QQQ (Nasdaq 100 ETF)
• Futures mentioned generally (besides ES/MES)
• Oil (used as an example for a futures version)

Single-name tech examples (as illustrations)

• Amazon (AMZN)
• Tesla (TSLA)
• Microsoft (MSFT)
• Google / Alphabet (GOOG)

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Core Payoff Construction (How the “111 Trade” Works)

The strategy combines three elements:

1. Buy an out-of-the-money put debit spread
2. Sell an additional farther-out out-of-the-money put
3. Choose strikes so that the sold put premium finances the debit spread, resulting in a defined net payoff (often framed as net credit overall)

Purpose

• Primarily income generation via option premium
• Acts as a “semi-hedge” (not a full hedge), because in the “trap” scenario the trade can profit more than the initial credit.
• If price falls far enough, assignment risk may cause you to buy the underlying at a discount, framed as a wheeling / owning-stock pathway.

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Methodology: Step-by-Step Framework

As presented:

1. Select underlying

   • The speaker prefers large index/futures: SPX/ES/SPY/MES/QQQ.

2. Choose days to expiration (DTE)

   • Typically 45–60 DTE
   • Speaker preference: around ~60 DTE
   • Original version used: around ~45 DTE

3. Build the put debit spread

   • Use out-of-the-money strikes
   • (Width/debit examples appear below.)

4. Finance with a farther OTM short put

   • The sold put strike is far enough OTM that the premium helps achieve:
     • positive net credit overall
     • a “trap” zone where maximum profit becomes possible

5. Manage exits mechanically

   • Stop loss at ~1× max profit (described as “One X the max profit”)
   • Assignment / wheeling is treated as an alternative planned outcome
   • Exit guidance depends on whether price is in:
     • tail
     • trap
     • or beyond a “point of no return” (far-risk area)

6. Portfolio and risk sizing rules

   • Risk ≤ 2% of portfolio value per trade
   • Allocation ≤ 30% of total portfolio to this strategy (or any one strategy)

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Key Targets, Ratios, and Performance Claims

Return & timeframe goals

• Stated goal: ~6% monthly incoming roughly every ~60 days
• Re-stated: “three percent a month”
• Framed annualized: ~36% per year
• DTE references:
  • 45 DTE used in some calculations/examples
  • 60–65 days referenced in rationale (and in oil examples)

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“Tail” vs “Trap” Outcomes (Profit Multipliers)

The strategy can profit in two main ways:

1. Tail

   • Options expire worthless
   • You keep the initial credit

2. Trap

   • Price moves into the region associated with the spread
   • You reach maximum profit

How max profit is framed

• Trap max profit includes:
  • Keeping the initial credit
  • Capturing the width of the debit spread
• Speaker claims potential “four times or more” the initial credit (depends on setup)

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Numeric Examples (As Given)

Example A: ES (futures) illustrative trade math

Structure example

• Debit spread: 4310 / 4260
  • About ~50 wide
  • About ~$10 debit
• Short put farther OTM (financing credit)
  • Example around ~4110–4150
  • So net credit is ~$10

Multipliers / dollars

• Tail profit: stated as ~$500 on a ~$10 credit
  • Using ES 50 multiplier
• Trap max profit: stated as:
  • Debit width ($50) × multiplier (200 mentioned) + $500
  • Total: $3000 max profit
• Max loss: also described as $3000 (defined-risk framing)

Buying power / risk sizing

• Example buying power: ~$6400
• If it expires in tail: described as about ~8% in 45 DTE

Assignment / “point of no return” concern

• Example concern passing a level around ~4100
• Mentioned as roughly ~300 points drop (example context: market near ~4400)
• Speaker emphasizes a slow decline is desired to “build” the trap gradually.

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Example B: SPY (ETF) performance framing

• Similar structure on SPY
• Described as less attractive, mainly due to buying power/return differences
• Rough estimate mentioned:
  • About ~2% return on buying power over ~45 days
  • Earlier mention: around ~1.5%
• Not framed as “fantastic” versus futures.

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Example C: “Optimal 111” strike selection heuristic

A claimed “optimal” configuration:

• Put debit spread width: 25–30 points
• Debit / spread cost: ~$6
• Short put credit: ~$11 (farther OTM)
• DTE comparison:
  • “Closer to 60 days” vs “30 wide” notes
  • Speaker suggests 60 DTE helps reduce gamma effects and improves safety/credit while keeping ROI similar
• Historical claim:
  • No losing trades in 2020–2021 using this method
  • Then moved to 112 in 2022

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Example D: TSLA options strike example

Speaker describes a thinner version on TSLA:

• Debit spread: buy/sell around ~210 / 205
  • About ~$1
• Sell farther put around ~180
  • About ~$2

Approximate results:

• ~$130 winner
• Margin roughly ~$5300
• ~2.5% return in ~60 days

Notes on outcome framing:

• If TSLA drops into trap range, you could effectively “buy at a discount” (assignment framed positively)
• If it stays up, you take smaller tail profit.

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Example E: Oil (futures) with explicit ROI framing

Illustrative oil setup:

• “Safety” zone around $60
• Tail:
  • Winner: ~$350
  • Tail return: ~8% in ~65 days if oil stays higher / moves higher
• Trap:
  • If oil drops into trap:
    • “Dead in the middle of the trap” yields about ~$2350 on ~$4700 margin
    • Claimed as ~50% return

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Greeks / Risk Notes Emphasized

• Delta

  • Starts slightly positive
  • If underlying rises, delta can become more negative (speaker says this can still be favorable)

• Theta

  • Positive theta initially
  • Time decay benefits as the short puts lose value

• Vega

  • If implied volatility rises significantly, put prices increase
  • Speaker notes it’s not helpful; you should be aware

• Gamma

  • If underlying rises, delta falls quicker (good)
  • If underlying drops, delta can increase quickly (could be bad)

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Disclosures / Cautions

• No explicit “not financial advice” disclaimer appears in the provided subtitles.
• However, the speaker repeatedly stresses:
  • Mechanical rules
  • Defined max loss and stop-loss logic
  • Sizing constraints:
    • ≤ 2% risk per trade
    • ≤ 30% allocation
  • Assignment risk if the market drops far enough

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Key Recommendations / Explicit Actions

• Prefer large underlyings (index futures like ES/MES) for stronger economics
• Use around ~60 DTE (or original ~45 DTE)
• Tune strikes to create:
  • a tail where you keep credit
  • a trap where you can reach max profit
• Apply strict sizing:
  • Risk ≤ 2% per trade
  • ≤ 30% portfolio allocation to this strategy
• Manage exits mechanically:
  • stop-loss relative to max profit
  • treat assignment as part of the plan (wheel/owning underlying)

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Presenter / Source

• Subtitles appear to come from a single presenter (name not shown).
• Source referenced: “How to Trade the 111 Strategy - Complete Guide to the 111 Trade” (channel name not specified in the excerpt).

Category

Finance

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