Could anyone confirm if a seagull spread is known to provide unlimited upside as per Investopedia it is known to hedge risk and provide a modest return?
A long, bullish seagull spread (which the curriculum calls a long seagull) has unlimited upside; think of it as a bull spread with an additional long call at a higher strike.
A short, bullish seagull spread (which the curriculum calls a short seagull) has limited upside; think of it as a bull spread with an additional short put at a lower strike.
Bearish seagull spreads (which the curriculum doesn’t mention) have limited upside: the short bearish seagull by design and the long bearish seagull simply because a long put has limited upside.
By the way: good for you to check up on what you read in Investopedia. I’ve found a few errors here and there in their definitions/explanations.
Hi magician, Thanks for the explanation. As per internet articles seagull is bull spread + sell OTM put option. You have mentioned Bull spread + call option which is very different from articles found on the net.
That’s a short (bullish) seagull.
A long (bullish) seagull is a bull spread plus a long OTM call.
There are also bearish seagulls: similar idea but with a bear spread instead of a bull spread.
Hi Magician, for one of the your mock specifically mock 3 Q5 in AM exam . For long seagull you have used this concept bull spread + sell OTM put option. I am confused?
Look more carefully: it’s not a bull spread. You start with a long position in the underlying. This is a long seagull constructed as a collar (instead of a bull spread) plus a long OTM call.
You tell me.
You are correct sir.I was wrong.
Better to learn that now than on exam day.
Keep at it!
1 Like