What is a Long Guts?
Buy 1 ITM Call
Profits from a strong move higher.
Buy 1 ITM Put
Profits from a strong move lower.
Mental model: “I expect a large move, but I do not know which direction. I am willing to pay more premium for options that already have intrinsic value.”
Core structure
For a stock at $100:
| Leg | Action | Example Strike | Moneyness |
|---|---|---|---|
| 1 | Buy Call | $95 | ITM |
| 2 | Buy Put | $105 | ITM |
Both options use the same expiration.
Worked example
| Leg | Strike | Example Premium |
|---|---|---|
| Buy $95 Call | $95 | $8.00 = $800 |
| Buy $105 Put | $105 | $8.50 = $850 |
Total Premium = $16.50/share = $1,650
Break-even points
Upper Break-even = Put Strike + Total Premium = $105 + $16.50 = $121.50
Lower Break-even = Call Strike - Total Premium = $95 - $16.50 = $78.50
Maximum loss
Between the two strikes, the position retains $10/share of combined intrinsic value.
Max Loss = Total Premium - Strike Difference
Max Loss = ($16.50 - $10.00) x 100 = $650
The maximum loss is not the entire $1,650 premium because at expiration the two ITM options together retain at least $10/share of intrinsic value between the strikes.
Maximum profit
Upside
Theoretically unlimited as the stock rises.
Downside
Very large as the stock falls toward $0, but ultimately capped because stock cannot fall below zero.
Expiration outcomes
| Stock Price | Approximate Result |
|---|---|
| $60 | +$1,850 |
| $78.50 | Lower break-even |
| $90 | Loss |
| $100 | -$650 max-loss zone |
| $110 | Loss |
| $121.50 | Upper break-even |
| $140 | +$1,850 |
Long Guts vs. Long Straddle
| Feature | Long Guts | Long Straddle |
|---|---|---|
| Call strike | ITM, lower strike | Usually ATM |
| Put strike | ITM, higher strike | Usually same ATM strike |
| Upfront cost | Higher | Lower |
| Intrinsic value at entry | Yes | Usually little/none |
Long Guts vs. Long Strangle
| Feature | Long Guts | Long Strangle |
|---|---|---|
| Options purchased | ITM | OTM |
| Premium | Higher | Lower |
| Intrinsic value | High | None at entry |
| Capital required | Higher | Lower |
Volatility and time decay
IV rises
Usually helps both long options.
Time passes
Usually hurts because both options are long premium.
You need enough movement, enough volatility expansion, or both before expiration to overcome time decay.
Pros and cons
Pros
- Benefits from a large move in either direction.
- No uncovered short-option risk.
- Can benefit from rising volatility.
- Maximum loss is known in advance.
Cons
- High upfront premium.
- Time decay works against the position.
- Needs a substantial move to become profitable.
- Can lose if stock remains between the strikes.
How to close it
Close: Sell to Close the long call + Sell to Close the long put.
Common mistakes
- Assuming ITM options make the trade low risk.
- Ignoring the large total premium paid.
- Failing to calculate max loss after intrinsic value.
- Buying before an expected volatility collapse.
- Holding too long while time decay accelerates.
Beginner checklist
| Check | Question |
|---|---|
| ☐ Large-move thesis | Do I expect a move large enough to justify the premium? |
| ☐ Direction uncertainty | Do I genuinely not know whether the move will be up or down? |
| ☐ Premium | Can I afford the larger upfront cost? |
| ☐ Break-evens | What are my exact upper and lower break-even prices? |
| ☐ Volatility | Could implied volatility fall after I enter? |
| ☐ Alternative | Would a Long Straddle or Long Strangle be more capital-efficient? |
Key takeaway
Long Guts = Buy ITM Call + Buy ITM Put, Same Expiration
It is a large-move, direction-agnostic strategy that costs more than a Straddle or Strangle because both options begin in the money.