Know More About the Strategy

Short Guts is a strategy wherein the investor simultaneously sells an In-The-Money Call and an In-The-Money Put of the same underlying security and same expirty.

When to use this strategy?
This strategy is used when the investor is neutral on the underlying security and is expecting very little volatility in the short term.

How to build this strategy?
This strategy has two legs:
Leg 1 – Sell 1 ITM Call
Leg 2 – Sell 1 ITM Put

Credit Spread/Debit Spread
This is a Credit Spread strategy.

Profit Potential
This strategy has limited profit potential.

When is this strategy profitable?
The investor earns maximum profit when the price of the underlying security at expiry is between the strike prices of the call and put options sold.

Risk
The investor faces unlimited risk in this strategy.

When is this strategy unprofitable?
The investor stands to make large losses if the price of the underlying security moves sharply in either direction.