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
Steve September 29th, 2009 at 3:55am
You are such an option gun
Gaurav August 28th, 2009 at 5:53am
Hi there,
Sir can you explain this strategy GUTS with an example because i not getting it completely..
Nitesh August 25th, 2008 at 6:10am
Thanks for the explanation. Appreciated.
Admin August 25th, 2008 at 5:34am
Hi Nitesh,
I see what you're saying and it would be true if the call were purchased at a higher strike price. However, I say that the put is purchased with a higher strike price, not the call.
So, the definition is for the put to have a higher strike price AND for both options to be ITM.
Know what I mean?
Nitesh August 25th, 2008 at 3:20am
Under components you say, that Buy one call option and buy one put option at a higher strike price. However, if you that in Guts (as mentioned under Characteristics) that you buy in the ITM options it doesn't hold true with the call option at a higher strike price. If you buy a call option at a higher strike price it will be OTM call option instead of ITM call option.
Let me know if I am correct else please give me a explanation.
Thank you
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