🎯 SYSTEM OVERVIEW

Component	Description
Strategy Type	Volatility Risk Premium (VRP) Harvest System
Structure	1 Put Debit Spread + 2 Short Puts
Style	Defined-risk short vol with crash buffer
Market Type	Liquid Index Options Only (SPX / NDX / /ES)
Objective	Collect premium while surviving volatility regime shifts

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🧱 I. POSITION STRUCTURE (THE TRADE)

📦 1-1-2 CONFIGURATION

Leg	Type	Strike Selection	Purpose
1	Put Debit Spread (Hedge)	Long 25Δ / Short 20Δ	Crash buffer
2	Short Put	~5Δ OTM	Income generation
3	Short Put	~3Δ OTM	Tail premium layer

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📅 EXPIRATION RULES

Rule	Requirement
DTE Range	60–120 days
Minimum DTE to hold shorts	≥ 7 days
Early exit preference	>50% profit capture
No trading exceptions	Events override entries

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📊 II. ENTRY FILTERS (TRADE / NO TRADE)

🟢 MARKET REGIME CHECK

Indicator	Green (Trade)	Yellow (Reduce Size)	Red (No Trade)
Term Structure	Contango	Flat / Flattening	Backwardation
IV vs RV	IV > RV	IV ≈ RV	RV > IV
IV Percentile	> 30%	15–30%	< 15%
Liquidity	Spread < 5%	5–10%	> 10%
Event Risk	None	Minor data	FOMC / CPI / Shock

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🚫 HARD NO-TRADE CONDITIONS

Condition	Rule
Backwardation	Do not trade
Illiquidity	Spread > 10%
High event risk	CPI / FOMC window
Low IV regime	No premium edge

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🧮 III. DETERMINISTIC SIZING ENGINE

📐 POSITION SIZE FORMULA

$$N = \left\lfloor \frac{AccountEquity \times 0.02}{3 \times UnitNetCredit} \right\rfloor$$N=⌊3×UnitNetCreditAccountEquity×0.02​⌋

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📦 SIZING RULES

Rule	Constraint
Risk per trade	~2% max equity
Rounding	Always round down
Minimum size	If N < 1 → NO TRADE
Regime adjustment	Yellow = 50% size

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📉 EXPOSURE LIMITS

Constraint	Limit
Correlated index exposure	Max 2 units
Concentration rule	SPX / NDX / ES treated as same
Equity exposure	Not allowed

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⚠️ IV. PORTFOLIO RISK CONTROLS

🧨 VOLATILITY SHOCK RULE

Condition	Action
Portfolio Vega ↑ > 25% in 1 session	Reduce exposure 33%
Execution priority	Close 5Δ puts first
Goal	Reduce gamma exposure fast

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📊 RISK CAPS

Metric	Limit
Portfolio Vega	≤ $250 per $100k
Correlation spike	If ~1.0 → reduce 50% exposure

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🧠 V. STATE MACHINE (TRADE MANAGEMENT)

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🟢 STATE 1 — HARVEST (NORMAL CONDITIONS)

Rule	Action
Standard exit	Close at 50% profit
Yellow regime	Close at 30% profit
Profit lock	≥35% + regime shift → EXIT
Efficiency stop	<25% profit at 50% DTE → EXIT

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🟡 STATE 2 — DEFENSE MODE

Trigger	Condition
Velocity	5Δ short put doubles in <48h
Drift	Delta rising 3 sessions + ≥40% move

ACTION TABLE

Action	Response
Immediate step	Close 5Δ short put
Result	Convert to 1-1-1 structure
No rolling	Forbidden in stress mode

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🔴 STATE 3 — CRISIS MODE

📉 GAP RULE

Condition	Action
SPX gap ≥ 3%	Wait 15 min
No bounce	Exit immediately

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⚡ CASCADE OVERRIDE

Condition	Action
Continuous selloff after open	Immediate exit
No liquidity recovery	Full de-risk

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💀 LIQUIDITY COLLAPSE

Condition	Action
Spread > 5× normal for 60 min	Structural exit

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☠️ ABANDONMENT RULE

Condition	Action
Loss = 3× credit	Close all positions

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🧯 VI. POST-EVENT SYSTEM CONTROL

❄️ COOL-DOWN RULE

Event	Rule
Abandonment or 5% drawdown	5 trading day pause

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📉 RE-ENTRY LADDER

Phase	Allowed Size
Days 1–5	50% size only (Green regime)
Day 6+	Full size allowed

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🧾 MANDATORY POST-TRADE TAGGING

Field	Options
Regime	Green / Yellow / Red
Trigger	Harvest / Drift / Velocity / Gap / Abandonment
Execution	Clean / Slipped / Partial / Failed
Cause	Model / Market / Behavioral

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🧱 VII. CORE RULES (IMMUTABLE)

🚫 HARD LIMITS

Rule	Description
No interpretation	Rules are binary
No equity trades	Indices only
No <7 DTE shorts	Absolute prohibition
No rolling in crisis	Forbidden
No trading if N < 1	System blocks entry

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🧠 SYSTEM INTENT

🎯 WHAT THIS IS

Layer	Meaning
Strategy	VRP harvesting system
Risk model	Deterministic exposure control
Execution	Rule-based state machine
Objective	Survive volatility regimes, not predict them

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⚠️ REALITY NOTE (IMPORTANT)

Risk Type	Still Exists
Overnight gap risk	Yes
Liquidity collapse	Yes
IV shock repricing	Yes
Broker margin changes	Yes

This system:

does NOT eliminate risk — it controls when and how risk is allowed to expand

📚 1-1-2 Strategy: Digital Resources & Bibliography

Primary 1-1-2 Video Deep-Dives

• The 1-1-2 Masterclass: The 1-1-2 Strategy – Tom King (The OG Logic)
• 1-1-2 Tactical Execution: How I Trade the 1-1-2 for Consistent Income – Austin Bouley
• Backtesting the 1-1-2: The 1-1-2 Strategy: Backtest & Performance Data
• 1-1-2 vs. 1-1-1 Comparison: Which is Better? The 111 vs. The 112 Analysis

1-1-2 Articles & Strategic Documentation

• The 1-1-2 Playbook: Systematic Volatility Harvesting: Inside the 1-1-2 – Theta Profits
• The “Sweet Bobby” Methodology: Convex Hedging & The 1-1-2 Configuration – MRTOPTICK Notes
• Community Refinement: 1-1-2 Risk Management Post-Mortem – r/thetagang
• GitHub Knowledge Base: Private Geldanlage Repository (1-1-2 Logic & Margin Specs)

Quantitative & Institutional Research (The “Why” behind 1-1-2)

• VRP & Skew: The Volatility Risk Premium in Ratio Spreads (Emerald Insight)
• The 1-1-2 Stress Test: Managing Double-Naked Put Exposure in SPAN Margin Environments (BIS Bulletin)
• Market Mechanics: Beating the Financial Futures Markets (Ratio Strategies) – Collins (2006)