Strategies · Library · Options
§2.55Hedges and structures
Bearish long seagull spread
Buy a put below the market, sell a call near it, and buy a higher call to cap the loss on a rally, usually at zero cost. It gains if the price falls.
- Asset class
- Options
- Held for
- To expiry
- Data
- ARCANE has part of the data
- Symphony
- Cannot be built as a symphony
The rule
- Signal
- Bearish: expects the price to fall, with a hedge for a surprise rally.
- Entry and exit
- Buy a lower-strike put, sell a middle-strike call, buy a higher-strike call, same expiry, aiming at zero net cost. Hold to expiry or close early.
- Sizing
- 1 long put, 1 short call, 1 long call
How it fails
- Loss on a rally is capped by the higher call, at the strike gap plus any cost
- Gain is capped by the price reaching zero
- A flat market can leave a small loss between the short call and the put strike, depending on cost
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 falls by a date matches this view, paper only; no long-only trade copies it.
Needs options and a bearish payoff, which a long-only builder cannot hold.
Source: Kakushadze and Serur (2018), 151 Trading Strategies, §2.55, p. 39 of the SSRN version. Described in our words. Hedges and structures is ARCANE’s filing, not the book’s.