The Kite Spread: An example

Per Ricardo's request, here's an example of a 3CP Kite (both puts and calls), using RUT. 

The kite spread represents one method for exercising good risk management when trading iron condor (or credit spread) positions.

Here's the risk graph for a 10-lot December RUT iron condor:

2009-11-12_0838IC

Next, here's the same position, with the addition of a C3 Kite and a P3 Kite.

2009-11-12_0845_10IC_+_3_Kite

NOTES:

1) This is the graph today.  It changes as time passes and expiration approaches.

2) I could have chosen different strike prices.  These are merely illustrative.  My second choice would have been to sell more of the same strikes as in the IC and buy 550P and 620C.

3) Each kite required payment of a debit, so if all options expire worthless, profits are reduced.

517

10 Responses to The Kite Spread: An example


  1. Fatal error: Uncaught Error: Call to undefined function ereg() in /home/mdwoptio/www/blog/wp-content/themes/canvas/includes/theme-comments.php:63 Stack trace: #0 /home/mdwoptio/www/blog/wp-content/themes/canvas/includes/theme-comments.php(19): the_commenter_link() #1 /home/mdwoptio/www/blog/wp-includes/class-walker-comment.php(179): custom_comment(Object(WP_Comment), Array, 1) #2 /home/mdwoptio/www/blog/wp-includes/class-wp-walker.php(144): Walker_Comment->start_el('', Object(WP_Comment), 1, Array) #3 /home/mdwoptio/www/blog/wp-includes/class-walker-comment.php(139): Walker->display_element(Object(WP_Comment), Array, '5', 0, Array, '') #4 /home/mdwoptio/www/blog/wp-includes/class-wp-walker.php(387): Walker_Comment->display_element(Object(WP_Comment), Array, '5', 0, Array, '') #5 /home/mdwoptio/www/blog/wp-includes/comment-template.php(2244): Walker->paged_walk(Array, '5', 0, 0, Array) #6 /home/mdwoptio/www/blog/wp-content/themes/canvas/comments.php(43): wp_list_comments(Array) #7 /home/mdwoptio/www/blog/wp-includes/commen in /home/mdwoptio/www/blog/wp-content/themes/canvas/includes/theme-comments.php on line 63