Strategies · Library · Options
§2.56Hedges and structures
Bearish short seagull spread
Sell a put far below, buy a put near the market, and sell a call above, usually for zero cost. It gains on a moderate fall but carries unlimited loss on a rally.
- 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 a moderate fall, accepting risk of a rally.
- Entry and exit
- Sell a lower-strike put, buy a middle-strike put, sell a higher-strike call, same expiry. Hold to expiry or close early.
- Sizing
- 1 short put, 1 long put, 1 short call
How it fails
- Loss on a rally is unlimited, since the call is uncovered
- Gain is capped at the gap between the put strikes
- A collapse past the lower put gives back some of the gain
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 moderately by a date matches this view, paper only; the rally risk should be shown.
Needs options and short exposure.
Source: Kakushadze and Serur (2018), 151 Trading Strategies, §2.56, p. 39 of the SSRN version. Described in our words. Hedges and structures is ARCANE’s filing, not the book’s.