In Options Auto Trader, the 112 strategy allows for flexible hedging options once the trade reaches its take profit target. When setting up or editing a 112 auto trader, you can choose between several hedging strategies to protect or enhance your position once the take profit has been hit. This article explains the three hedging options available: Close Entire Trade, Put Debit Spread (PDS) Hedge, and Ratio Hedge.
Step 1: Understanding the 112 Strategy
The 112 strategy involves selling two short puts and one put debit spread (PDS). Once your take profit percentage is hit, you have several options for managing the trade to lock in profits, limit risk, or hedge against potential market moves.
Step 2: Hedging Options Available
Close Entire Trade
If you choose to close the entire trade, the auto trader will close all legs of the 112 trade once your take profit target is reached.
When to use: This is a good option if you want to lock in all profits and completely exit the trade once your target is achieved.
Example:
You set a take profit percentage of 50%. Once your trade reaches this 50% target, the auto trader will close the entire 112 position, locking in your profits and eliminating further market risk.
Put Debit Spread (PDS) Hedge
If you choose the Put Debit Spread (PDS) Hedge, the auto trader will close the two far out-of-the-money (OTM) short puts when they hit a return equal to your take profit percentage. The remaining PDS will act as a hedge.
When to use: This option is ideal if you want to remove the risk from the short puts while maintaining the PDS as a hedge against market downside.
Example:
You set a take profit percentage of 40%. Once the two far OTM short puts achieve this 40% return, the auto trader will close them, leaving the PDS in place as a hedge for further market protection.
Ratio Hedge
If you select the Ratio Hedge option, the auto trader will close the short put that is part of the put debit spread (PDS) when it hits a return equal to your take profit percentage. The remaining puts will continue to act as a ratio spread.
When to use: This option allows you to lock in profits from the short put while maintaining a more aggressive hedge with the remaining puts.
Example:
You set a take profit percentage of 30%. Once the short put within the PDS hits this return, the auto trader will close that leg, leaving the remaining short puts to hedge your position.
Step 3: How to Set Up Hedging Options in the 112 Strategy
To configure these hedging options:
Log into your Options Auto Trader account.
Navigate to the Auto Trader page and click the gear icon to set up or edit your 112 strategy bot.
In the Exit Rules section, select one of the three options:
Close Entire Trade: Exits all legs of the trade when the take profit percentage is hit.
PDS Hedge: Closes the two far OTM short puts while maintaining the PDS as a hedge.
Ratio Hedge: Closes the short put within the PDS while keeping the rest of the trade open as a ratio hedge.
Set your desired Take Profit Percentage.
Save your settings.
Step 4: Monitoring Your Trades
Once your 112 auto trader is set up with the appropriate hedging strategy, the system will automatically manage the trade based on your chosen hedging option when your take profit percentage is reached. You can monitor the status of your positions from the Dashboard to see how the auto trader is handling the trade.
Conclusion
With the 112 strategy in Options Auto Trader, you can control how your trades are managed after reaching their take profit targets. Whether you choose to close the entire trade, use a Put Debit Spread (PDS) Hedge, or a Ratio Hedge, these options provide flexibility in protecting your profits and managing risk.
If you have any questions or need help setting up these hedging options, feel free to reach out to our support team for assistance.
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