Strategies · Library · Options
§2.54Hedges and structures
Bullish short seagull spread
Sell a put below the market, buy a call near the market, and sell a higher call, usually for zero cost. It gains if the price rises, up to a cap, and loses if the price falls.
Open in the builderAs a long-only proxy; see how ARCANE uses it.
- Asset class
- Options
- Held for
- To expiry
- Data
- ARCANE has part of the data
- Symphony
- Builds as a long-only proxy
The rule
- Signal
- Bullish: expects the price to rise to the higher strike, accepting loss on a drop.
- Entry and exit
- Sell a lower-strike put, buy a middle-strike call, sell a higher-strike call, same expiry, aiming at zero net cost. Hold to expiry or close early.
- Sizing
- 1 short put, 1 long call, 1 short call
How it fails
- Loss grows if the price falls below the put strike, up to the strike
- Gain is capped at the higher call strike
- Zero-cost entry hides the put liability, which behaves like holding the stock down
Data it needs
- options chain with strikes and premiums
- implied volatility
- underlying daily price
ARCANE has the underlying daily close but no options chains or implied volatilities
How ARCANE uses it
A Call that an asset rises to a target by a date, with downside accepted, matches this view; paper only.
Builds as a long-only proxy. Holding the underlying while it trends up captures the bullish direction, not the cap.
Source: Kakushadze and Serur (2018), 151 Trading Strategies, §2.54, p. 38 of the SSRN version. Described in our words. Hedges and structures is ARCANE’s filing, not the book’s.