Long Guts Options Trading Strategy
Long guts is an options trading strategy which is practiced by traders when high volatility is expected in underlying stock price. It is a neutral options trading strategy with unlimited profit potential and limited risk. Long guts traders buy the same number of call and put options of underlying stock with the same expiration date and higher strike price.
Long guts is a debt spread options trading strategy, i.e. trader enters the trade with a net debt. Profit increases with the increase/decrease of underlying stock price. If the stock price goes beyond the striking price of put option, the trader will profit by exercising in the money call option; and if the stock price goes below the strike price of the call option, then the put option expires in the money. In both cases, profit is calculated by deducting the original debt from the amount earned by exercising in-the-money option.
Loss occurs when both options expires in the money. Net loss is calculated by deducting the amount earned by exercising both call and put options from original debt. Short guts options trading strategy is also available, which is practiced when traders expect least volatility in underlying stock price.
Long guts is a debt spread options trading strategy, i.e. trader enters the trade with a net debt. Profit increases with the increase/decrease of underlying stock price. If the stock price goes beyond the striking price of put option, the trader will profit by exercising in the money call option; and if the stock price goes below the strike price of the call option, then the put option expires in the money. In both cases, profit is calculated by deducting the original debt from the amount earned by exercising in-the-money option.
Loss occurs when both options expires in the money. Net loss is calculated by deducting the amount earned by exercising both call and put options from original debt. Short guts options trading strategy is also available, which is practiced when traders expect least volatility in underlying stock price.
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posted by Daniel Pipitone at
6:52 AM
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