---
description: "A volatility strategy buying an ITM call at K1 and an ITM put at K2 > K1, profiting from a large move in either direction at higher cost than a straddle."
tags: [options, volatility, neutral, guts]
---

# Long Guts

**Section**: 2.24 | **Asset Class**: Options | **Type**: Volatility

## Overview
The long guts is a volatility strategy consisting of a long position in an ITM call option with strike K1 and a long position in an ITM put option with strike K2 (K2 > K1). This is a net debit trade. Because both options are ITM, this strategy is more costly to establish than a long straddle position. The trader's outlook is neutral. This is a capital gain strategy. We assume D > K2 - K1.

## Construction
- Buy 1 ITM call option at strike K1
- Buy 1 ITM put option at strike K2 (K2 > K1), same expiry

Net debit: D  (assumed D > K2 - K1)

## Payoff Profile
f_T = (S_T - K1)+ + (K2 - S_T)+ - D

- Upper breakeven: S*_up = K1 + D
- Lower breakeven: S*_down = K2 - D
- Max profit: P_max = unlimited  (stock can move far in either direction)
- Max loss: L_max = D - (K2 - K1)  (if K1 <= S_T <= K2; intrinsic value offsets some debit)

## Key Conditions / Signals
- Neutral directional view; expects a very large move but uncertain of direction
- More expensive than a straddle but the ITM options provide intrinsic value floor
- Max loss is reduced by the intrinsic spread K2 - K1 relative to the full debit

## Notes
The assumption D > K2 - K1 prevents risk-free arbitrage. The intrinsic value of the ITM options (K2 - K1) offsets part of the debit, making the maximum loss smaller than for a straddle with the same debit D. Both options have positive delta at entry.