Short Guts
Description
Selling an in-the-money call and an in-the-money put, collecting a large premium on a bet that the underlying stays within a fairly wide range.
Setup
- Sell one in-the-money call, struck below the current price.
- Sell one in-the-money put, struck above the current price, same expiry.
Context
Used like a short strangle, when a large move is considered unlikely, with the in-the-money strikes producing a much larger up-front credit.
Risk Profile
Maximum gain is the combined premium collected, minus the intrinsic value already built into both strikes at entry, realized if the underlying finishes between the two strikes. Loss grows without bound on a large move in either direction.
Pros
- Collects a larger credit than a comparable short strangle.
- Wide range of underlying prices where the position is profitable.
- Benefits from a drop in implied volatility.
Cons
- Unlimited loss potential on a large move.
- Requires significant margin.
- More capital-intensive to manage than an out-of-the-money short strangle.
Effect of Time
Time decay favors the position, though a smaller share of the premium collected is pure time value compared to an out-of-the-money strangle.
Effect of Volatility
A rise in implied volatility hurts the position by inflating the value of both short options.
Look-Alike Strategies
Live Structure
| Position | Right | Ratio | Strike | Expiry | Premium | Fill Price | Est. Fee |
|---|---|---|---|---|---|---|---|
| Short | Call | 1 | $84000.0000 | 24 Sep 2026 | $612.9965 | $465.0318 | $25.3654 |
| Short | Put | 1 | $85000.0000 | 24 Sep 2026 | $528.4422 | $465.0291 | $25.3652 |
Estimated Cost to Assemble
An estimate of what entering this structure right now would really cost: filling every leg by crossing the spread (the ask when buying, the bid when selling) instead of at the mid-price, plus an estimated exchange fee. Real fees and fills can differ from this estimate.
Payoff & Greeks vs. Underlying Price
The Greeks curves are a Black-Scholes model using each leg's current implied volatility, holding time to expiry fixed -- not live exchange data at every price, which only exists at the current price (dashed line).
Payoff at Expiration
This structure's value and profit/loss at expiration, at a handful of specific prices: every leg's strike, every breakeven, the current spot, and the chart's own range.
| Underlying Price | Value at Expiration | Profit / Loss | Return on Cost |
|---|---|---|---|
| $83000.0000 | -$2000.0000 | -$858.5613 | -75.2% |
| $83858.5613 breakeven | -$1141.4387 | $0.0000 | +0.0% |
| $84000.0000 | -$1000.0000 | $141.4387 | +12.4% |
| $84551.2400 current | -$1000.0000 | $141.4387 | +12.4% |
| $85000.0000 | -$1000.0000 | $141.4387 | +12.4% |
| $85141.4387 breakeven | -$1141.4387 | $0.0000 | +0.0% |
| $86000.0000 | -$2000.0000 | -$858.5613 | -75.2% |