Options Trading Strategies: Long Guts
The long guts is a two-legged strategy, created by buying one In The Money call and one In The Money put, both with the same expiration date. The opposite to short guts.
When to use this strategy?
You expect a drastic BTC/ETH price move in either way and are looking to make a capital gain.
Below is a Profit and Loss chart example of a long guts options strategy:
Pros:
Capped and relatively small maximum loss. Uncapped and potentially high profit if the price moves drastically.
Cons:
Expensive because you have to buy both put and call In The Money.
Example:
In this example, BTC is trading at 44,384.10 USD, and you expect a stagnation or a small movement in price ineither direction. You have sold an ITM call with a strike price 43,000.00 and an ITM put with a strike price of 45,000.00 USD, both with an expiration date of February 18th 2022.
As this is a net credit spread you have received a net premium of 4,109.81 USD.
The Profit and Loss chart is given below:
Upon expiration:
If the BTC price is below the ITM call strike price, the call expires worthless, the put is assigned, so you are in the profit as long as the bitcoin price ends up below the first break-even point.
If the BTC price is at any or between the strike prices, then both the call and the put expire worthless, and you are at your maximum loss which is equal to net premium minus the difference between strikes.
If the BTC price is above the ITM put strike price, the put expires worthless, a long call is assigned, so you are in the profit as long as the bitcoin price ends up above the second break-even point.
| BTC at Expiry (USD) | Payoff (USD) |
|---|---|
| 39,829.00 | -1,061.19 |
| 40,539.00 | -351.19 |
| 40,890.19 (break even 1) | 0 |
| 41,938.00 | +1,047.81 |
| 43,000.00 & 45,000 (SC ITM & SP ITM) | +2,109.81 (max gain is between strikes) |
| 46,069.00 | +1,040.81 |
| 47,109.81 (break even 2) | 0 |
| 47,394.00 | -284.19 |
| 48,176.00 | -1,066.19 |