Beginner Question On Wing Spreads

Discussion in 'Options' started by cnfuzzd, Apr 12, 2012.

  1. cnfuzzd


    Hi All

    In order to "feel" what it was like i recently made/entered/bought a spread for KMI, expiring on May 12th with the middle strike of 37.5 and two ends of 35 and 40. Now what do I do?

    (I really want to end the post there)

    Assuming I maintain profitability, is it better to wait for expiration, should I try to close early to capture some profit, etc?

    Assuming I think the stock is moving big in either direction, should I immediately try to close?

    fwiw, I started this to have fun, and I am indeed having fun!


  2. cnfuzzd


    to clarify, the position is a long iron butterfly.
  3. Is this what it looks like?

    -1 35P +1 37.5 P +1 37.5 C -1 40 C???

    What did you pay for it? the max win is 2.5 less your cost + commission ...obviously you want a big move in either direction. You lose if it closes 37.5...right?
  4. I have an orange that's worth 50 cents.

    Next week it might be worth $1 or it might very well be rotten and worthless.

    What should I do?
  5. cnfuzzd


    Other direction. I bought the two ends (35 and 40) and sold the two middles. I win if the stock does not move outside the range.


  6. cnfuzzd


    Threaten to throw the orange at someone unless they give you $5....

    Your point is well taken. I suppose the right answer is that I need to examine the rest of my portfolio and determine how much risk it can tolerate vs how much risk there is remaining until expiration?

    Thank you so much for your reply!
  7. Everyone's risk tolerance and approach to reward is different. You indicated that the position is profitable. I think a good rule of thumb is to try to avoid turning a winning position turn into a loss. That's easier said than done but the effort improves long term net profitability.
  8. So you collected how much premium? When you have a trade like that you do have to pretty much close it all together as its soooo risky to close the puts & calls separately. If you sold it today how much of a profit? KMI is a solid Company that experienced a very large move this year. Personally I'm uncomfortable holding a position like that for any length of time (or at all)...but..GL
  9. cnfuzzd


    I purchased 4/11 with a may expiry (19th). I was credited with $220.95, and if I had to close out now I would lose $54.05. Currently the stock is between the strikes, but (i am assuming) there is just too much time left for the position to be profitable.

    Thanks again!
  10. It could work out just find. May isn't that far out, its just that you don't give yourself much wiggle room. After April exp if the stock is close to 37.5 you'll start seeing profit however if you can keep half your credit (a reasonable expectation) how much will you have left after comission?

    The truth is anyone can poke holes in another's option of choice. This is a good learning experience and hopefully not costly so enjoy.:)
    #10     Apr 13, 2012