Strategies · Library · Options
§2.57Hedges and structures
Bullish long seagull spread
Buy a put far below, sell a put near the market, and buy a call above, usually for zero cost. It gains on a rise without a cap and loses a bounded amount on a fall.
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 a sizable rise, with the put as a floor.
- Entry and exit
- Buy a lower-strike put, sell a middle-strike put, buy a higher-strike call, same expiry, aiming at zero net cost. Hold to expiry or close early.
- Sizing
- 1 long put, 1 short put, 1 long call
How it fails
- Loss is bounded: it equals the gap between the put strikes plus any cost
- Upside is unlimited
- Flat markets between the strikes cost little but earn nothing
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 sharply by a date matches this view; paper only.
Builds as a long-only proxy. Holding the underlying in an uptrend captures the direction, not the floor.
Source: Kakushadze and Serur (2018), 151 Trading Strategies, §2.57, p. 40 of the SSRN version. Described in our words. Hedges and structures is ARCANE’s filing, not the book’s.