Options Trading Strategies: Short Guts
The short guts is a two-legged strategy, created by selling one In The Money call and one In The Money put, both with a same expiration date.
When to use this strategy?
You are direction neutral, looking for an income strategy and do not expect a drastic BTC/ETH price movement.
Below is a Profit and Loss chart example of a short guts options strategy:
Pros:
A variation of a short strangle to increase the net premium.
Cons:
Maximum profit is capped, and maximum loss is uncapped.
Example:
In this example, BTC is trading at 44,384.10 USD, and you expect a stagnation or a small movement in price in either 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 put expires worthless, the call is assigned, you are in the profit as long as the bitcoin price ends up above 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 profit which is equal to net premium minus the difference between strikes.
If the BTC price is above the ITM put strike price, the call expires worthless, the short put is assigned, you are in the profit as long as the bitcoin price ends up below 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 |