Seagull Option Spreads: Structure, Strike Placement, and Volatility Views

Summary

The document describes a seagull as a financed option structure combining a call spread with a short put, or the reverse arrangement. Its example buys a call at a lower strike, sells a higher-strike call, and sells a put below the underlying price. Strikes can be adjusted to make the initial premium close to zero, with the short put helping fund the call spread.

The strategy is presented for a market where implied volatility is elevated and expected to decline, alongside uncertainty about direction. The short call limits upside participation, while the short put introduces downside exposure. The answer also suggests that a high volatility skew may support selling the upside call. These are qualitative considerations rather than a detailed payoff analysis; the document does not specify expiration, underlying asset, or risk controls, so the example alone is insufficient to assess the trade’s full risk and suitability.

Key ideas

• A seagull can combine a purchased call spread with a short put, or use the reverse configuration.
• The example buys a lower-strike call, sells a higher-strike call, and sells a lower-strike put.
• Strike selection can be adjusted so the option premiums approximately offset.
• The structure is associated with high implied volatility expected to fall and uncertain price direction.
• The short put creates downside exposure, while the short call caps upside participation.

Tags

# Seagull option strategy - clear example


# Seagull option strategy - clear example












It looks like the subject of seagull option strategy is not as clearly explained as for other strategies (butterly, bull,bear spread). Thus, can someone provide a clear example of what you buy and sell in this strategy? Also, could you please indicate the ralationship between the strikes of each option that is involved in it?

## Answer by jaredwoodard (score 4, accepted)

https://quant.stackexchange.com/a/8795

The first Google result seems clear enough:

> A seagull option is structured through the purchase of a call spread and the sale of a put option (or vice versa)....This structure is appropriate when volatility is high but expected to fall, and the price is expected to trade with a lack of certainty on direction.

So, for example, you might buy the 105% call, sell the 110% call, and sell the 95% put, nudging the strikes as necessary if initially you want to pay zero premium.

If implied volatility is already high, the premium from a short put should finance a more bullish call spread than if IV is low; that, plus the short call make this suitable only when future volatility is expected to decline. It seems like you would also want to have the view that volatility skew is high to justify selling the upside call. More in this note from RBC: https://www.rbccm.com/global/file-410676.pdf

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