# Seagull Option Strategy: Three Legs, Low Premium, and Tail Risk

Understand a bullish seagull as a short Put plus bull Call spread, including expiration payoff, premium accounting, assignment, and execution risk.

Canonical: https://wiki.fcontext.com/options/seagull-option-strategy/
Fact checked: 2026-07-22

> For educational purposes only; not investment advice.

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## Direct answer

A **bullish seagull** combines a short lower-strike Put with a long Call spread: sell one Put, buy one Call, and sell one higher-strike Call, normally on the same underlying, expiration, deliverable, and quantity. The two short-option premiums can reduce or offset the long Call's price. That financing is not free: the short Put creates substantial downside exposure, while the short upper Call caps the upside.

“Seagull” is not perfectly standardized. Markets also use bearish, hedged-stock, and foreign-exchange variants. Identify the three legs and payoff instead of relying on the strategy label.

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## Structure and expiration payoff

Let the short Put strike be `Kₚ`, long Call strike `K₁`, short Call strike `K₂`, with `Kₚ < K₁ < K₂`. Let `D` be the initial net debit per share; a credit makes `D` negative. At expiration, before fees:

`P/L = −max(Kₚ − S_T, 0) + max(S_T − K₁, 0) − max(S_T − K₂, 0) − D`

- Below `Kₚ`, loss grows dollar for dollar as the underlying falls.
- From `Kₚ` through `K₁`, all legs expire without intrinsic value, so the result is `−D`.
- Between `K₁` and `K₂`, the long Call adds value dollar for dollar.
- Above `K₂`, the Call spread is capped at `K₂ − K₁`.

For standard equity options, one contract commonly represents `100` shares, but adjusted contracts can differ. Confirm the deliverable. The short Put may require cash or margin, and either short American-style option can be assigned before expiration.

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## Example: 90 / 105 / 115 bullish seagull

With stock at `$100` and `45` days remaining, suppose a trader sells one `90 Put`, buys one `105 Call`, and sells one `115 Call`. Assume the package opens for zero net premium and the multiplier is `100`:

| Stock at expiration | Option value per share | Package result |
| --- | ---: | ---: |
| `$80` | `−(90 − 80) = −$10` | `−$1,000` |
| `$100` | `$0` | `$0` |
| `$110` | `110 − 105 = $5` | `+$500` |
| `$125` | `(125 − 105) − (125 − 115) = $10` | `+$1,000` |

The upside maximum is `(115 − 105) × 100 = $1,000`. If the stock reaches zero, the short Put loses `90 × 100 = $9,000`, before any opening credit, fees, or stock position. A `$0.40` net debit would subtract `$40` from every row; a `$0.40` credit would add `$40`.

Enter the three legs as one package limit order when available. Legging into the trade can leave an unintended naked short option, and the displayed midpoint is not a guaranteed fill.

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## Risks and controls

- **Downside tail:** the short Put can approach its strike times the multiplier in loss if the underlying falls toward zero.
- **Capped reward:** gains stop increasing above the upper Call strike, even if the underlying keeps rising.
- **Assignment:** a short option may be assigned early. Closing one leg changes the strategy and can sharply increase buying-power requirements.
- **Liquidity:** three bid-ask spreads, fees, and partial fills can erase an apparent low-cost entry.
- **Path risk:** before expiration, volatility, time, rates, dividends, and skew affect all legs; the expiration table does not predict interim value.
- **Operational risk:** mismatched expirations, quantities, or adjusted deliverables do not produce the stated payoff.

Choose the Put strike only where the resulting purchase obligation is acceptable, test a severe decline, and define an exit plan before opening.

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## Common misconceptions

- “Zero cost means zero risk.” It describes opening premium, not loss potential.
- “The short Put only finances the Call.” It is an enforceable purchase obligation after assignment.
- “Capped profit means capped loss.” The bullish version remains exposed below the Put strike.
- “Every seagull has this payoff.” Conventions differ; inspect signs, strikes, underlying position, and settlement.
- “Three legs diversify execution risk.” More legs usually add spreads and operational dependencies.

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## Related topics

- [Bull Call spread](/options/bull-call-spread/)
- [Cash-secured Put](/options/cash-secured-put/)
- [Assignment risk](/options/assignment-risk/)
- [Option order types](/options/order-types/)

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## Authoritative sources

- [Options Industry Council: Bull Call Spread](https://www.optionseducation.org/strategies/all-strategies/bull-call-spread-debit-call-spread)
- [Options Industry Council: Cash-Secured Put](https://www.optionseducation.org/strategies/all-strategies/cash-secured-put)
- [Options Industry Council: Options Assignment FAQ](https://www.optionseducation.org/referencelibrary/faq/options-assignment)
- [OCC: Characteristics and Risks of Standardized Options](https://www.theocc.com/company-information/documents-and-archives/options-disclosure-document)