A three-legged structure — typically long a call spread financed by a short put — used to get directional exposure for close to zero premium.
A bullish seagull buys a call spread and sells an out-of-the-money put to pay for it. The result looks like a risk-reversal with its upside truncated: you participate in a move up to the short call strike, pay nothing (or a small credit) for the privilege, and accept downside exposure below the put.
Corporate hedgers use seagulls constantly in FX and commodities because treasurers dislike paying upfront premium and are comfortable with a known worst case. The structure trades a defined slice of upside for the elimination of cash cost.
Example: XYZ at $50. Buy the $52.50 call at $1.30, sell the $57.50 call at $0.30, sell the $45 put at $0.95, for a $0.05 debit. You gain between $52.50 and $57.50, break even almost everywhere in the middle, and own downside risk below $45.
Original diagrams for the ideas on this page. Illustrative, not real market data.
Buying a call: payoff at expiry. A 105-strike call bought for 3 loses that whole 3 if the price finishes at or below 105, breaks even at 108, then gains a dollar for every dollar higher. The loss is capped at the premium; the upside is not capped.The bid-ask spread. Buy orders sit below, sell orders above, and the gap between the best bid (50.01) and best ask (50.04) is the spread you pay to cross. Bar length shows the size resting at each price.
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