← Strategy LabLesson 48 · 4:19
Seagull
Summary
A seagull (the bullish build used in this lesson) is a bull call spread paid for by selling a put below the price, for when you expect a rise to about $105 and accept a sold put's risk. In the XYZ example it costs $46 instead of $187 for the spread alone; the most you can make is $454 at $105 or above, and you break even at $100.46. Below $95 the sold put keeps losing, and a fall to zero would lose $9,546.
Key terms
- seagull
- In this lesson, a bull call spread paid for by selling a put below the price; the name is also used for other three-option builds, such as the bearish mirror.
- bullish (long) seagull
- The seagull build used here: buy a call, sell a higher call, and sell a lower put.
- bull call spread
- Buy a lower-strike call and sell a higher-strike call with the same expiry, paying to open, to profit from a rise.
- uncovered put
- A sold put that the shares you own do not cover, so assignment means buying 100 more shares with extra cash.
- assignment
- When a buyer exercises and you, as the seller of that option, must deliver.
- net debit
- When a pair of trades sends cash out overall.
- break-even
- The stock price on the last day where you neither make nor lose money: strike plus premium for a call, strike minus premium for a put.
- T plus zero line
- The blue line on the chart showing your result today, if you closed the trade right now.
- margin
- Money your broker holds against what a sold position could lose.
Check yourself
Answer each question to see why the right answer is right.
1. XYZ ends at $90 on the last day. What is the seagull's result?
2. Which leg in the seagull pays for the discount?
3. XYZ ends at $110 on the last day. What is your result?
4. XYZ jumps to $105 right away, with 30 days left. What does the lesson's model show?
5. Where does the seagull break even on the last day?
Finished the video and the quiz? .