Strategy Source

• Creator: Tom King
• Published Date: Jun 24, 2023
• URL: https://www.youtube.com/watch?v=kt5A4NNjwNg&t=2111s

Trade Setup

The “LT112” (Long-Term 112) is a delta-neutral-leaning income strategy utilizing ES (S&P 500) Futures. The trade structure consists of buying a Put Debit Spread (PDS) and simultaneously selling two out-of-the-money naked puts to finance the spread and generate a net credit.

Note: Legs are stacked chronologically by strike price from lowest to highest.

Action (Sell (-)/Buy (+))	Leg	DTE	Strike Price / Delta Target	Width
–	Put Option (Naked)	120	~5 Delta	N/A
–	Put Option (Naked)	120	~5 Delta	N/A
–	Put Option (PDS Short Leg)	120	50 points below Long Put	50 points
+	Put Option (PDS Long Leg)	120	~25 Delta	N/A

• Total Capital Required: Approximately $6,000 in buying power per trade in a standard margin account (or roughly $12,000 in an IRA). To ladder a full 4-month cycle, the strategy requires about $24,000 in dedicated buying power.
• Execution Context: The video showcases a walkthrough of the creator’s live trading account portfolio and demonstrates theoretical trade builds on a live platform.

Strategy Application

The LT112 strategy is a modification of the standard 60-day 112 trade. By pushing the timeline out to four months, the trader can achieve double the income while using roughly 25% less buying power.

• Strike Selection: The creator relies on mechanical Delta (strike metric / “probability of success”) to place the legs. The protective long put is placed around the 25 Delta. The two naked short puts are placed extremely far out-of-the-money at the 5 Delta.
• Time Differential: The strategy pushes the expiration out to 120 Days to Expiration (DTE). This longer timeline allows the premium to inflate, which pays for the debit spread while still leaving a massive net credit.
• Buffer Zone: Because you are going out 120 days to collect premium, the 5 Delta short puts can be placed 200 to 300 points lower than they would be in a standard 60-day trade. This creates a massive safety cushion—the market would need to drop roughly 24% before those naked puts are breached.
• Market Environment: This trade is designed to weather choppy, bearish, or bullish markets. It performs best during steady upward climbs or mild market sell-offs where the price lands inside the debit spread.

Risk Profile

• Wing Widths: The Put Debit Spread carries a defined structural risk with a 50-point width. The two short puts are completely naked, meaning they carry undefined risk down to zero.
• Buying Power & Span Margin: Futures utilize SPAN margin, which is dynamic. While the initial capital outlay is low (~$6,000), a severe market drop will cause margin requirements to expand rapidly. However, by trading the 120-day version once a month, you hold fewer overall positions than the weekly version, lessening the portfolio drag from expanding SPAN margin and Vega (“Volatility risk”).
• Assignment Risk: If the market drops past the 24% buffer zone and breaches the short 5 Delta puts, you face assignment on the ES futures. Being assigned requires approximately $14,000 in buying power per contract to hold the position.
• Capital Preservation: The creator mitigates the undefined risk by sizing small, allocating only a fraction of their total account value ($24,000 in a $130,000+ account) to leave plenty of cash available to absorb margin expansion.

Expected Outcome

This strategy has two distinct profit zones, determined by where the market closes at expiration.

1. The “Tail” (Your Base Win)

If the market goes up, stays flat, or drops slightly (but not enough to hit your 25 Delta long put), the Put Debit Spread expires worthless. You keep the entire net credit collected from selling the two naked puts.

2. The “Trap” (The Bonus Zone)

If the market drops into the “trap” between your long put and your short naked puts, the Put Debit Spread gains value. You get to keep the initial premium collected plus the profit of the 50-point wide debit spread (which historically can jump the profit from $500 up to $2,500+).

Management & Exit Triggers

Defensive Stop Loss: Not explicitly detailed in source transcript. However, the creator prefers to take assignment near the 3,100 level and roll/manage the position rather than actively stopping out of the trade for a loss beforehand.

Primary Target: Close the entire trade when you achieve a 50% profit on the credit received.

Risk-Off Target: If the market rallies and the naked puts lose almost all their value, close those short legs early for “a buck or two.” This takes the undefined risk entirely off the table while letting the rest of the trade ride.