Short strangles vs. short guts?

[crgarcia]

(a short gut is a short 'strangle', but selling in-the-money options)

 

[Div_Arb]

Have you ever ralphed after putting one on?

 

[atticus]

Your point? The difference between the two is the box arbitrage, hence they are equivalent. Short guts is the inside strangle; short otm is the outside strangle.

 

[crgarcia]

Quote from atticus:

Your point? The difference between the two is the box arbitrage, hence they are equivalent. Short guts is the inside strangle; short otm is the outside strangle.

I know, thanks.

I want to know some practical differences.

 

[atticus]

Quote from crgarcia:

I know, thanks.

I want to know some practical differences.

You know? Then you know there aren't any differences.

 

[nazzdack]

Are they margined the same if the risk profile is the same? Does the guts tie up more money than the strangle? Just curious.

 

[atticus]

Quote from nazzdack:

Are they margined the same if the risk profile is the same? Does the guts tie up more money than the strangle? Just curious.

Identical risk-profile as defined by the box arbitrage. A long(short) outside strangle combined with a short(long) inside strangle results in a box.

I can't answer your question about broker req. RegT requires the same margin if shorting, but individual broker reqs may differ. A long guts strangle will require a larger debit outlay under regT. SPAN margin should be the same for the inside and outside strangles.