The question gives:
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Are both strategy short seagull? Does strategy 1 provide downside protection to 2.0355 or only to 2.1046?
Strategy 2 is short seagull, you combine a protective put with a risk reversal ie protective put-long put at 2.5309 and short put at 2.5049 and short risk reversal- long put and short call at 2.5669. this strategy is short seagull because the wings are short and the body is long.
strategy 1 the body that is the middle strike price you are short put at 2.1356 and the wings you are long at lower exercise price 2.1046 and the other wing you are short at 2.1456. i don’t think this is a short seagull strategy.regarding downside protection i dont think there is any beacuse you are selling put at a higher exercise price therefore if price of the currency goes down you will gain on long put but will loose also on the higher exercise put that you have writen.
I agree strategy 1 is not short seagull, and not long seagull. I don’t know what it is
And in strategy 1, i see the long put of 2.1046 as providing a downside protection, because if price moves below 2.1046, you are protected by the long put of 2.1046.
i agree with your point on strategy 2. Thank you.
I thought strategy 2 is Long Seagull like the diagram below.
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But i am confused about the strategy 1 again even I thought I figured out already…
Wings are the name.
If that is the case, is strategy 2 a long seagull or short seagull? Also, is my diagram correct for the strategy 2?
Also, is the diagram for strategy 1 like below?
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Thank you for your help!