Short Guts

Outlook: Neutral

Short Guts  -  Sell In-the-Money Strike Calls, Sell In-the-Money Strike Put.
        
Strategies...

•          Sell lower Strike Call (ITM)
•          Sell higher Strike Put (ITM) with same expiration.
•          Seeking for sideways movement of the stock
•          Unlimited downside risk, capped profit.

Example...

Best Buy Co., Inc.(NYSE:BBY) is traded at $18.30 on June 1, 2012. To short a Guts,

•     Sell June 16, 2012 $17 Call at $1.40.
•     Sell June 16, 2012 $20 Put at $2.00.

Short Guts

Short Guts

Advantages...

•         Profit from sideways movement of the stock.
•         Received options premium

Disadvantages...

•         High-risk strategy
•         Unlimited risk if stock moves in either direction

Maximum Profit:          $1.40 + $2.00 - $3.00 = $0.40
                                  (Call Premium + Put Premium - Different in strikes)

Maximum Loss:           Uncapped
                            
Breakeven Up:            $20.00 + $3.40 - $3.00 = $20.40
                                   (Higher Strike Price +  Premium gain - Different in strike)

Breakeven Down :       $17.00 - $3.40 + $3.00 = $16.60                                
                                   (Lower Strike Price - Premium gain + Different in strike)