Long Guts
| B/S | Strike | Type | Price |
|---|---|---|---|
| Buy 1 | $24 | Call | $1.31 |
| Buy 1 | $26 | Put | $1.34 |
| Net Debit | $265 | ||
A Long Guts is buying one call option and buying a put option with a higher strike price in the same expiration month.
The Max Loss is limited to the total premium received for the call and put options.
The Max Gain is uncapped as the market moves in either direction.
Characteristics
When to use: When you are bullish on volatility but are unsure of market direction.
A long guts has the same profile as a Long Strangle. The difference is that with a guts you only buy ITM options. A strangle you buy OTM options.
Long Guts Greeks
Delta
Gamma
Vega
Theta
15 Comments
marty May 18th, 2011 at 12:14am
Does anybody have any experience using these Long Guts. Seems like we just need to find volitile stocks (or what ever) with liquid options. Any body there?
Peter November 16th, 2010 at 9:31pm
Ah yes, correct. I've clarified this in the description now.
Ivo November 16th, 2010 at 5:52pm
The maximum loss is actually less than the sum of the premiums. At least one of the options will always expire in the money, and give you a "discount" over the sum of the premiums. This explains why the profile does look like a long straddle.
Peter September 13th, 2010 at 8:37pm
Yep, I would agree. I would always go with a strangle over a guts. The OTM options will gain value quicker and lead to greater % returns over ITM alternatives.
gaurav tandon September 13th, 2010 at 1:54pm
if there's a downward bias (considering your example), then buying an ATM put may be a better choice than an ITM put...
dont you think so...
Peter September 12th, 2010 at 9:54pm
I guess it depends on where the stock is trading and what your view of the stock is. Suppose with the above graph the stock is trading at $27 and has been in a $23 to $27 range for quite some time. You might have a view that the stock will break out of that range and also have a bias to the downside. So you will want that extra kick as the market falls but still want some protection if the market does rally. Whatever way the market goes you may be convinced of it breaking the range of the strikes and hence that's the strategy you will need to establish.
gaurav tandon September 12th, 2010 at 2:08am
A long strangle cheaper will be cheaper than a long gut.
then why would anyone prefer this over a long strangle
Peter August 1st, 2010 at 9:02pm
As long as the underlying asset is above (below) the higher (lower) strike at the expiration date - plus premium paid - you will make money.
anjanappa chintamani August 1st, 2010 at 1:21am
suppose market either moves one side gain another side loss but how to earn money
sanjay June 24th, 2010 at 4:22pm
sir , please give an example with every strategies .this is easier to me understand quickly
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