Short Guts
The inverse of the Long Guts — sell 1 ITM call and 1 ITM put. Collects a large credit but with strong directional risk.
Profit / Loss Diagram
Short Guts at expiration
What is this strategy?
The Short Guts is the inverse of the Long Guts: sell 1 ITM call and 1 ITM put. A neutral strategy collecting a large credit but carrying <strong>unlimited risk</strong> on the upside and very large risk on the downside.
It is functionally equivalent to a Short Strangle but with in-the-money strikes. It collects more credit but also requires more margin and offers less buffer before losses begin. Not recommended for beginners.
Useful when you expect strong stability and want to maximise the credit collected. Risk management is critical — always use defined stops.
Construction
| Action | Instrument | Strike | Expiration | Example |
|---|---|---|---|---|
| SELL | 1 Call | ITM (lower) | 30-60 DTE | -1 SPY May 440 Call |
| SELL | 1 Put | ITM (higher) | Same expiry | -1 SPY May 460 Put |
Example
SPY at $450, you expect it to stay in the range. Short Guts at strikes 440/460.
- Call Sold (440) +$1,300 premium received
- Put Sold (460) +$1,300 premium received
- Net Credit +$2,600
- Maximum Gain $600 ($2,600 credit − $2,000 of guaranteed intrinsic) with SPY between $440 and $460
- Loss if SPY = $400 −$3,400 (the put is worth $6,000 less the $2,600 credit)
- Maximum Loss Unlimited on the upside; $43,400 if SPY falls to zero
The Greeks
Same as the Long Guts but inverted.
Lower than an OTM short strangle.
Benefits from falling IV.
Serious gamma risk near the strikes.
Position Management
- 01 High Margin Short in-the-money positions require substantial margin. Check available capital first.
- 02 Adjust if It Turns Directional Roll or close the affected leg if price moves away from the profit zone.