Short guts

Summary

Short guts sells a call with a strike below the price and a put with a strike above it, so both start in the money, as a bet that XYZ sits still. In the example you collect $1,299, but between the strikes the pair is always worth $1,000, so the most you keep is $299, while the loss above has no limit and below it keeps growing until XYZ reaches zero. You break even at $92.01 and $107.99.

Key terms

short guts

Selling a call with a strike below the stock price and a put with a strike above it, so both start in the money, to bet the stock sits still.

in the money

An option that is worth something if used now: a call with the stock above the strike, or a put with the stock below it.

uncovered selling

Selling options without owning the shares or setting the cash aside to back them, so your broker holds margin.

margin

Money your broker holds against what a sold position could lose.

early assignment

Being assigned before the end date, which can happen on any day with American-style options.

T plus zero line

The blue line on the chart showing your result today, if you closed the trade right now.

time value

The rest of an option's price, paid for the chance things get better before the end, and gone by the last day.