Long Guts Strangle – The Option Strategy Desk Reference

Long Guts Strangle

Strategy: Buy n ATM Calls, 90 DTE

Buy n ATM Puts, 90 DTE

Example:

Price Chart: A series of strong directional price moves

Current IV%: 25% (to reduce premium values)

IV Rank: 10 to 20

Trade: Buy n ATM call options; buy n ATM put options. (All options expire 90 DTE.)

Strike Deltas: (both 1 to 3 strikes OTM)

Long OTM Call 0.50

Long OTM Put 0.50

Goals: A strong directional price move benefits one of the long options as it moves deeper ITM. The opposite long option is closed as soon as the trader is confident that the directional price move will continue.

Manage: Watch for a strong directional price move. Respond by selling the losing long option when it begins to move OTM. Retain the profitable long options as they move deeper ITM for profit. Once a satisfactory profit is achieved, sell the remaining long options.

Profit: Close when the remaining options achieve a profit of 30 percent or more.

Loss: Close if the directional move changes and begins to reduce the value of the remaining long options.