Short Guts


The opposite of Long Guts, and similar to a short straddle.

Description

Involves selling a call option and a put option on the same underlying security with the same expiration date and strike price. This is also known as a short straddle. The goal of a short guts strategy is to profit from a narrow trading range or a decrease in volatility in the underlying security.

If the price of the underlying security remains relatively stable and doesn’t experience significant price movements, both options will expire worthless, and the trader can keep the premium collected from selling the options. If the price of the underlying security moves significantly in either direction, the trader may incur losses on one or both options.

 

Breakeven

the strike price of the call option plus the premium collected from selling the call and put options, minus the strike price of the put option minus the premium collected from selling the put option

 

Sweetspot

Stock price stays flat

 

Max profit

The limited, premium collected from selling the call and put options

 

Max loss

Unlimited if the stock price goes way down or way up.



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