Uncover the Tom King 112 Income Options Strategy—a refined approach to generating steady income through options trading. This strategy balances risk management with profit potential, making it ideal for investors seeking to diversify their portfolios.
Key Components of the Strategy
Exit Loss Trigger
- Close positions if losses equal the trade’s max potential profit.
Hold To Expiration
- Maintain positions unless triggered by exit rules.
Days To Expiration (DTE)
- Optimally 45–120 DTE for flexibility.
How the 1-1-2 Strategy Works
Developed by veteran trader Tom King, the 1-1-2 Strategy combines:
- 1 long put (out-of-the-money).
- 1 short put (below the long put).
- 2 short puts (further out-of-the-money).
👉 Learn more about cash-secured puts
Example Trade Setup
- Underlying Asset: SPY (S&P 500 ETF).
- Strikes: $415 (long put), $410 (short put), $360 (2x short puts).
- Net Credit: $147 (no upside risk).
- Buying Power Reduction: ~$7,273.
Profit Potential:
- Up to 4x net credit if price falls within the "trap" (hump on the expiration graph).
- Annualized returns: ~9% (conservative) to 36% (aggressive).
Flexibility and Adjustments
- Bullish Bias: Increase credit by adjusting strikes.
- Bearish Bias: Widen the downside trap.
- Early Exit: Lock profits if price rallies unexpectedly.
FAQs
1. How does this differ from a short strangle?
The 1-1-2 hedges downside risk with a put debit spread, while a strangle has unlimited risk on both sides.
2. Is assignment likely?
Rare, but ensure liquidity and comfort owning the underlying asset.
3. What’s the ideal DTE?
Tom King prefers 120 DTE, but 45+ DTE also works.
👉 Explore advanced options strategies
Conclusion
The Tom King 112 Strategy offers a conservative yet profitable path for options traders. Key takeaways:
- Targets high win rates (~95%).
- Adaptable to market conditions.
- Requires disciplined risk management.
Trade safely and always adhere to your risk tolerance.
Disclaimer: This content is for educational purposes only. Consult a financial advisor before trading.