Short Guts

An in-the-money put and an in-the-money call sold in the same expiration: the crossed strikes take in a credit that already includes intrinsic value.

Also called Short guts strangle, Sold in-the-money strangle

Outlook

Neutral

Family

Directional

Level

Expert

Legs

2 legs

Expirations

1 expiration

Opens for

Credit

Maximum profit

Limited

Maximum loss

Unlimited

Legs at the reference strikes this page's diagrams are drawn from

Leg	Side	Contract	Ratio	How the strike is chosen
A	Short	Put 105	1	Delta 70
B	Short	Call 97.5	1	Delta 70

What it is

A call sold at B below the underlying and a put sold at A above it, both in the money and in the same expiration. It is long guts inverted, and the mirror of a short strangle at crossed strikes.

The credit looks large because it contains the distance between the strikes as intrinsic value. That part is not profit: it is owed back whatever happens.

The payoff

At expiration

An inverted flat-topped shape between the crossed strikes: the maximum gain is the credit less the width, and the loss grows outside the strikes.

• Between B and A — both legs are in the money and together owe exactly the width between the strikes. The maximum gain is therefore the credit less that width, kept anywhere in the range.
• Outside the strikes — one leg’s loss keeps growing while the other’s obligation is capped. On the upside there is no bound.

How it behaves before expiration

Today, before expiration

Today's value is a shallow curve below the flat-topped shape, with both corners rounded.

Only the extrinsic part of the credit is earned over time; the intrinsic part is a liability that does not decay. The curve therefore rises toward the plateau more slowly than the size of the credit suggests.

The Greeks

Delta is near zero between the strikes and turns against the position outside them.

Gamma is negative, concentrated where the legs cross out of the money.

Theta is positive on the extrinsic portion only.

Vega is negative and modest — in-the-money options carry less extrinsic value to reprice.

Where it lives in the volatility environment

Practitioners treat short guts as equivalent to a short strangle at the mirrored strikes and choose between them on execution and assignment considerations rather than on exposure. The equivalence follows from put-call parity.

What can go wrong

• The loss is unbounded on the upside, as with any short strangle.
• Early assignment is materially more likely here. Both legs are in the money, which is the precondition for early exercise, and an in-the-money short call is a candidate before an ex-dividend date.
• The credit overstates the gain. Most of it is intrinsic value that has to be returned.
• Margin is charged on the risk, not the credit, and the crossed strikes do not reduce it.
• Assignment on one leg leaves shares plus a single short option — a different structure with a different risk.

Building it in Option Panel

Open Build Strategy and pick Short Guts. The crossed strike arrangement is accepted as the definition of the structure. The order ticket’s direction guard still applies: a derived credit that the quoted band contradicts is refused rather than sent.

Back to the encyclopaedia · What-if analysis in the docs

Related strategies

• Short Strangle — the same exposure from out-of-the-money strikes, and the more common execution.
• Long Guts — the other side.
• Iron Condor — the defined-risk way to hold the same view.