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Bullish

Long Guts

Long Guts

Components

Buy one call option and buy one put option at a higher strike price.

Risk / Reward

Maximum Loss: Limited to the total premium paid for the call and put options.

Maximum Gain: Unlimited 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.

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Nitesh
Posted 51 days ago
Thanks for the explanation. Appreciated.
Admin
Posted 52 days ago
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
Posted 52 days ago
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