Expiry Payoffs of a Put-Call Seagull Position

Summary

The document works through the expiry payoff of a position that buys a put, sells a call at a higher strike, and buys another call at a still higher strike. Ignoring premiums, the long put produces gains below its strike, the position is flat between the put strike and the short call strike, and the short call creates losses over the next strike interval. Above the highest strike, the long call offsets the short call, leaving the position flat.

This payoff description clarifies that the structure does not deliver unlimited gains as the underlying falls: the put’s payoff is capped by its strike. The analysis is limited to expiry and excludes option premiums, so it does not describe the full profit and loss profile before expiry or the effect of initial cost and volatility changes.

Key ideas

• Below the put strike, the long put pays off up to its strike value.
• Between the put strike and the short call strike, the payoff is flat before premiums.
• Between the short and long call strikes, the short call causes losses as the underlying rises.
• Above the long call strike, the purchased call offsets the sold call.
• Ignoring premiums, the downside payoff is bounded rather than unlimited.

Tags

# Seagull Spread payoffs


# Seagull Spread payoffs












I'm looking at different option strategies and the ways that their payoffs differ (and therefore how they can differently be used).

I'm looking at the long seagull (buy a call spread and sell a put), and wondering if taking the opposite positions in these would provide an unlimited payoff with decreasing strike and a limited loss with increasing strike?

As an example:

- Buy a put with strike 1.2

- Sell a call with strike 1.3

- Buy a call with strike 1.4

Should the two calls not cancel once the strike hits 1.4 and therefore this is your maximum loss? Whilst a strike 1.2 and below will result in a profit (ignoring premiums)?

## Answer by AlRacoon (score 0, accepted)

https://quant.stackexchange.com/a/43492

Based on your example, at expiry, your gains on your put will be between 0 - 1.2 of your underlying; you will be flat between 1.2 - 1.3; you will lose between 1.3 - 1.4 due to your short call; and you will be flat > 1.4 of your underlying due to your long call offsetting your short call, ignoring premiums.

## Answer by Ezy (score -1)

https://quant.stackexchange.com/a/43491

Long put always has limited payoff (bounded by the strike)

Shown in full with attribution under the source's licence. Licence: CC BY-SA 4.0 (Stack Exchange)

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.