Guts Option Strategy

Category: Finance

What is Guts Option Strategy? "Long Guts like Strangle is a volatility strategy that aims to make money either way from a stock/index soaring up or plummeting down. Long Guts strategy demands underlying to move significantly up i.e., this is nondirection but volatility-based strategy. In other words, if the underlying fails to show a significant move trader will lose value in this, but the option will not expire worthlessly." When to Execute? The gut is a non-directional strategy, but trade must be bullish on volatility. It is advised that Guts should be implemented when there is an event in the near term, and volatility is on the lower and expected to increase or can be implemented on high Volatile underlying. Expiry should be distant to avoid exponential time decay that happens as expiration approaches. What is the Trade? Under Guts we buy One lot of In-the-Money (ITM) Call and Put for the same expiration, distance should be equal between the strike price from the ATM. Break-Even Point Under Guts we buy One lot of In-the-Money (ITM) Call and Put for the same expiration, distance should be equal between the strike price from the ATM. Lower Breakeven = PE - Net Premium Paid. Upper Breakeven = CE + Net Premium PaidWhat will be the maximum profit? Maximum Profit is undefined if the market shows a significant move above or below the upper or lower breakeven respectively.