Seagull Spread

CFA Level III Portfolio Management
#1

I’m lost here. Exchange rates + options = a bit too much for me.

What is the motivation behind using short seagull spread? and long seagull spread?

What MUST we know about these two strategies?

In plain language, I’m humbly asking.

#2

you start with a protective put.

but you want it cheaper, so you use a put spread by selling a lower put that is deeper OTM.

but you want it cheaper, so you sell a call that is OTM.

you sold the wings, so you are short the seagull.

I would not memorize the payouts, but understand what option would get called or have value when the price is at a certain point.

#3

That is only the bearish seagull. You can have a long seagull (combines a bull call spread and the sale of an out the money put).

#4

Payouts are easy to compute once you know the payout of call and payout of put. I think this way:

Payout of long call is positive when price St is higher than exercise price X, hence I use higher price minus lower: =max(0, St - X) If call is long, then I use + sign in front of max, if call is short, then I use - sign in front of max.

Payout of long put is positive when price St is lower than exercise price X, hence I use higher price minus lower:" =max(0, X-St) If put is long, then I use + sign, if short, then - sign.

#5

without premiums :slight_smile:

#6

My brain has run out of storage space, and therefore I am unable to process said concept.

#7

Eating honey increases brain storage space. 1 bite = 1 formula space.

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