Seagull Option

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DEFINITION

A three-legged option strategy, often used in forex trading, that can provide a hedge against the undesired movement of an underlying asset. A seagull option is structured through the purchase of a call spread and the sale of a put option (or vice versa).



Seagull Option

INVESTOPEDIA EXPLAINS

The option contracts must be in equal amounts and are normally priced to produce a zero premium. 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.

In the second example above, a hedger purchases a seagull option structured as the purchase of a call spread (two calls), financed by the sale of one out-of-the-money put, ideally to create a zero-premium structure. This is also known as a "long seagull." The hedger benefits from a move up in the underlying asset's price, which is limited by the short call's strike price.


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  3. Bear Call Spread

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  5. Call Option

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  6. Hedge

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  7. Put Option

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  8. Strike Price

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  9. Spot Price

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  10. Spread Option

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