Long Gut

The name comes from the strikes being 'inside' (like intestines) the current stock price. The call strike is below and the put strike is above, bracketing the stock from the inside. This is opposite to a strangle where strikes are outside.

A gut includes intrinsic value in both options. While a S$33 straddle might cost S$1.05 (all extrinsic), a S$32/S$34 gut might cost S$2.85 (S$2.00 intrinsic + S$0.85 extrinsic). You're paying for the guaranteed floor value.

No, not the entire premium. The strike width (e.g., S$2 for S$32/S$34 strikes) is guaranteed at any expiration price. You can only lose the extrinsic portion (premium minus strike width).

Use a gut when: you want lower daily theta decay, you have more capital to deploy, you plan to hold through multi-day events, or you want a guaranteed floor value. Use straddle for maximum gamma with less capital.

No. Gut breakevens are further from current price (outside the strike range). You need a bigger move to profit, but you also have less at risk. It's a trade-off: higher capital, lower risk, bigger move needed.

True risk = Total Premium - Strike Width. For a S$32/S$34 gut costing S$2.85: Risk = S$2.85 - S$2.00 = S$0.85. The S$2.00 is guaranteed regardless of outcome.

ITM options typically have wider bid-ask spreads than ATM options. This slippage can reduce or eliminate the theta advantage. Always check ITM strike liquidity before entering a gut.

Gut has lower gamma because ITM options have less gamma than ATM. Your position gains from movement, but less explosively. The trade-off is lower theta decay.

Size based on effective risk (premium - strike width). If your risk budget is S$1,000 and effective risk is S$850 per gut, you can do 1 gut even though total capital is S$2,850.

Guts are less affected by IV crush because they have less extrinsic value (lower vega). After events, gut positions lose less value from IV collapse than straddles would.

Put-call parity means ITM calls are linked to OTM puts and vice versa. Skew in the OTM options affects ITM pricing through this relationship. Sometimes gut extrinsic can be cheaper than straddle due to skew effects.

Long gut = Long straddle + Long box spread. The box value equals the strike width. This shows why gut and straddle have the same extrinsic exposure - the difference is just the box (guaranteed value).

Same as straddle: delta hedge with stock as position moves, then rebalance. However, lower gamma means less scalping opportunity. May not be worthwhile for small guts due to transaction costs.

The ratio may be similar despite different absolute values. Calculate: Gamma ÷ Theta for each. If gut ratio is similar or better with lower absolute theta, gut offers better risk-adjusted exposure.

Guts add long gamma to offset short gamma from iron condors. The lower theta of guts means less drag on portfolio. Size guts based on effective risk to balance with short-vol positions.