Investment Type: Debit
Strike Prices: ITM for both legs
Expiration Month: No Restrictions
Composition: Buy Call + Buy Put

 
  Long Guts Profile Chart  
 

 
Description:

 

Long Guts is Long Straddle with ITM Options. We choose higher strike for Put and lower strike for Calls. This strategy has a wider breakeven point and more expensive than Long Straddle

.

 
  Example  
 

 

Entry:


Maximum Initial Investment = $5,000 (or based on 5% money management rule)

 

Stock Price :
$34.00
   
Buy/Sell :
Buy
    
Strike Price :
32.5 Call
 } Premium: $2.15
Expiration Date :
December
No of Contracts :
13
    

 

Stock Price :
$34.00
   
Buy/Sell :
Buy
    
Strike Price :
35 Put
 } Premium: $1.70
Expiration Date :
December
No of Contracts :
13
    

 

Investment @ Entry = (Premium of Call Leg x No of Contracts x 100 Shares) + (Premium of Put Leg x No of Contracts x 100 Shares) = $2,795 + $2,210 = $5,005

 

Breakeven Point Down = Strike Price – Net Debit = $35.00 - $3.85 = $31.15
Breakeven Point Up = Strike Price + Net Debit = $35.00 + $3.85 = $38.85

 

Exit:

 

Best Case Scenario:

Stock Price :

 $40.00 up $6.00

    
Buy/Sell :

Buy

 } Premium: $7.50
Strike Price :

32.5 Call
Expiration Date :

December

 

Stock Price :

$40.00 up $6.00

    
Buy/Sell :

Buy

 } Premium: $0.00
Strike Price :

35 Put
Expiration Date :

December

 

OR

Stock Price :

 $27.50 down $6.50

    
Buy/Sell :

Buy

 } Premium: $0.00
Strike Price :

32.5 Call
Expiration Date :

December

 

Stock Price :

 $ 27.50 down $6.50

    
Buy/Sell :

Buy

 } Premium: $7.50
Strike Price :

35 Put
Expiration Date :

December

 

Profit @ Exit = (Premium of Call Leg x No of Contracts x 100 Shares) + (Premium of Put Leg x No of Contracts x 100 Shares) – Investment @ Entry = $9,750 + $0 - $5,00

5 = $4,745


Return of Investment = Profit @ Exit / Investment @ Entry = 95%

 

OR

 

Profit @ Exit = (Premium of Call Leg x No of Contracts x 100 Shares) + (Premium of Put Leg x No of Contracts x 100 Shares) – Investment @ Entry = $0 + $9,750 - $5,005 = $4,745

 

Return of Investment = Profit @ Exit / Investment @ Entry = 95%

 

Worst Case Scenario : Difference between strikes – Net Debit

 

Stock Price
Profit/Loss
ROI
27.50

4745

95%
30.00

1495

30%
32.50

-1755

-35%
35.00

-1755

-35%
37.50

1495

30%