Basic Concepts

• A wingtip is what we call the endpoint of an options strategy where it is furthest out of the money (OTM). 
• A reference to a wingtip is always to the furthest-OTM strike in a strategy. If the main leg on a vertical strategy (both options on the same date) is a credit (a premium is received for taking on some risks and potential obligations), then a long-option wingtip protects against some short gamma risk (directional risk increasing and accelerating). 
• By defining the risk in exchange for giving up some of the premium collected. In order for risk to become defined with main credit legs, then at least as many further-OTM long contracts would need to be written.

Intermediate: Using Wingtips to Limit Risk

If the main leg on a vertical is a debit (the trade costs some money initially but has defined risk). A short option wingtip would protect it by defining it with an even smaller risk (smaller debit): The upside of the profit distribution becomes capped but the max loss and debit invested is smaller. 

Advanced: Wingtips for Survival

The use of wingtips is generally criticized for harming edge (competitive trading advantage) in terms of raw returns on a strategy. But what those criticisms generally fail to account for is how wingtips offer protection with ergodicity, which means that benefits of the averages can be harvested without taking in the same kind of extreme tail risk that becomes associated with naked shorts on options. By naked, we mean there are no defensive measures in place on a short option, such as trading against it with the underlying security or using wingtips. 

The name “wingtip” comes from how a credit iron condor (a winged creature) has two short options in the middle (near the money) and then a long OTM option on both sides. Likewise, iron butterflies are written at the same strike (usually near the money) and then have wingtips further out. The delta (directional exposure) on the wingtip shows how relatively far out it is based on what the options market is pricing in.