Out of the money put option.

The strike prices of both the options are chosen just next to the at-the-money ATM Calls and Puts, i.

Out of the Money Options AKA OTM and How to Trade Them

This is a costly option, as in-the-money ITM options are considered, which are generally expensive. Description: This is a neutral option strategy, where if the price moves on either side, profit on one option will reduce the loss on the other option.

This strategy is opted when the trader is not sure of the direction but anticipates major price movement in the security, which increases the value of one of the options chosen and raises the chances of unlimited profit with limited risk. The Long Guts strategy is somewhat like a Long Strangle with the only difference being that out-of-the-money options are considered in the latter case. Also the cost involved in Long Guts is less than that needed in a Long Strangle.

The total cost at the start of trade would be Rs So call option at Rs 1, expires worthless and Put option at Rs 1, gets executed. A trader opts for this strategy when he expects less volatility.

The short guts strategy is somewhat like a short strangle, with the only difference being that out-of-the-money options are considered in the latter case. Now Case 1: If the security price moves upwards to Rs on the expiry day, the Put option at Rs expires worthless and the Call option at Rs gets executed.