The long guts is a neutral strategy in options trading that involves the simultaneous buying of an in-the-money call option and an in-the-money put option of the same underlying stock and expiration date. This is an unlimited profit, limited risk strategy that is taken when the options trader thinks that the underlying stock will experience significant volatility in the near term. The long guts is a debit strategy: you pay a net debit to enter.
At expiration, if the stock finishes between the two strikes, the position is worth the difference between the put strike and the call strike, so the maximum loss is the net debit minus that difference. The breakevens are the call strike minus (net debit minus the strike difference) on the downside and the put strike plus (net debit minus the strike difference) on the upside. Profit grows the further the stock moves beyond either breakeven. This is educational, not trading advice; the free Options Profit Calculator charts the payoff.
In this video we will be discussing:
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What long guts strategy is
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How long guts strategy works
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How it is calculated using Marketxls
Use the Long Gut Excel template to model the strategy.
Read the Short Guts and Long Guts comparison guide for a fuller explanation.
