Source: Canadian Options Trader – 111 Put Option Trade in /MES Futures
Feb 13, 2021
1. The Philosophy: Defensive Diversification
COT frames the 111 not as a primary income driver, but as a slightly bullish way to diversify a portfolio. It is designed to “lean long” at a significantly better price than buying shares, specifically hitting Strategy and Delta diversification goals.
- The “Mess” Factor: He advocates for the 111 over larger structures (like the 441) because it uses fewer contracts. This minimizes commission costs and keeps your dashboard clean and manageable.
- Vol-Specific Entry: He emphasizes that he only initiates this trade on down days when implied volatility (IV) has expanded, allowing for a much wider breakeven.
2. The Setup (The /MES Micro Advantage)
Using /MES (Micro E-mini S&P 500) futures allows for maximum capital efficiency with a very low barrier to entry.
- Duration: 45 to 50 Days to Expiration (DTE).
- Leg 1 (Buy 1 Long Put): Target the 25 Delta.
- Leg 2 (Sell 1 Short Put): 50 points wide (creating the Debit Spread).
- Target Cost: ~10 points ($50).
- Leg 3 (Sell 1 Naked Put): Far Out-of-the-Money, targeting a 9 Delta.
- Target Credit: ~20 points ($100).
- Net Result: You collect a ~10 point net credit ($50). The naked put pays for the hedge and puts cash in your pocket.
3. Advanced Management: The “222 to 221” Maneuver
This is COT’s signature risk-reduction tactic. It allows you to collect higher initial premium while systematically lowering your downside exposure.
- Enter as a 2-2-2: (2 Long Puts, 2 Short Puts, 2 Naked Puts).
- Monitor Volatility: As IV drops or the trade moves in your favor, buy back both naked puts.
- The “Roll Up”: Sell one new naked put closer to the money (reducing total units from 2 to 1).
- The Goal: You cut your “Unit Risk” (total number of naked contracts) in half while maintaining the full protection of your original long put spreads.
4. Risk Mitigation & Defense
- Assignment Mindset: You must be comfortable going long 1 /MES contract (equal to 50 shares of SPY) at your short strike.
- Rolling for Credit: COT strictly follows the Tastytrade philosophy of rolling for a credit. If the naked put is challenged, he rolls it “down and out” in time, never taking a loss as long as the market eventually recovers.
- Breakeven Cushion: Thanks to the debit spread, the actual breakeven is typically 60 points below the already conservative 9 Delta short put.
5. Quick Reference: Canadian 111 Logic
| Variable | COT Specification |
| Primary Underlying | /MES (Micro S&P 500) |
| Strike Selection | 25 Delta (Spread) / 9 Delta (Naked) |
| Preferred Environment | Red Days / High IV |
| Capital Impact | Extremely Low (~$82 per micro contract) |
| Management Style | Convert 222 to 221 to “sleep better at night.” |
| Core Defense | Mechanical rolling; never “hope,” just roll for credit. |
Summary Table: Compare & Contrast
For your blog, here is how COT differs from the other mentors we’ve analyzed:
| Mentor | Strategy Twist | Management Style |
| Tom King | 60 DTE for Gamma safety | Passive; mechanical exits. |
| Austin Bouley | 10 Delta / Mon-Wed-Fri stacking | Aggressive; 90% profit targets. |
| Canadian Trader | The 222 to 221 Unit Reduction | Defensive; uses rolls and unit cuts. |
111 Put Option Trade in /MES Futures (Part 1)
This video is essential because it shows the exact order entry for the /MES micro futures, highlighting the incredible capital efficiency where a $50 credit only requires ~$82 of margin.