Definition of Gut spread:
A gut spread, or "guts spread", is an option strategy created by buying or selling an in the money (ITM) put at the same time as an ITM call. Long gut spreads are used by option traders in instances where they believe that the underlying stock will move significantly, but are unsure whether it will be up or down. In contrast, a short gut spread is used when the underlying stock isn't expected to make any significant movement.
A gut spread is different from a typical option spread due to the fact that in a typical spread, out of the money (OTM) options will be used rather than more expensive ITM options.
An investment that is acquired to yield a high rate of profit in a short amount of time before stock is devalued on the market.
How to use Gut spread in a sentence?
- A long gut spread involves buying an in-the-money call and put.
- A short gut spread profits if the price of the underlying doesn't move much prior to the options expiring.
- A short gut spread involves writing an in-the-money call and put.
- A long gut spread profits if the price of the underlying makes a large price move prior to the options expiring.
Meaning of Gut spread & Gut spread Definition