Skip to content
Financial Context Wiki

Seagull Option Strategy: Payoff, Funding, and Short-Put Risk

Analyze one bullish seagull built from a short put and bull call spread, with explicit scope, expiration payoff, assignment, margin, and execution controls.

Updated

For educational purposes only; not investment advice. Investing may result in loss.

Direct answer

This article defines one bullish seagull for U.S. exchange-listed, physically settled equity options: sell one lower-strike put, buy one call, and sell one higher-strike call on the same underlying, expiration, multiplier, and deliverable. The put premium and short-call premium can reduce the long call’s cost, but the short put leaves substantial downside exposure and the short upper call caps the upside.

The scope is a single U.S. customer brokerage account as of 2026-08-22. It does not model an existing stock position, cash-settled index options, OTC foreign-exchange or commodity seagulls, or structured notes. “Seagull” is not a universal leg convention; ICE, for example, describes collar-based variants. Verify the actual legs rather than the label. Account approval, house margin, taxes, and legal suitability depend on the broker and jurisdiction; this is not individualized investment, legal, or tax advice.

Structure and expiration payoff

Let the short-put strike be K_P, the long-call strike K_1, and the short-call strike K_2, with K_P < K_1 < K_2. Let D be the executable opening net debit per share after trading costs; an opening credit makes D negative. For underlying price S_T at expiration, profit or loss per share is:

P/L = -max(K_P - S_T, 0) + max(S_T - K_1, 0) - max(S_T - K_2, 0) - D

  • Below K_P, loss increases point for point as the stock falls.
  • From K_P through K_1, all legs have zero intrinsic value and the result is -D.
  • Between K_1 and K_2, the long call adds value point for point.
  • At or above K_2, the result is capped at K_2 - K_1 - D.

The formula is an expiration model, not a forecast of an exit price. Standard U.S. equity-option contracts commonly cover 100 shares, but corporate-action adjustments can change the deliverable. American-style short options can be assigned on any business day. The put obligation must be supported under the account’s cash or margin rules; the call spread does not cap the short put’s downside.

Example: 90 / 105 / 115 bullish seagull

With stock at $100 and 45 calendar days remaining, sell one 90 Put, buy one 105 Call, and sell one 115 Call. Assume an executable zero-premium package, no additional costs, and a 100-share multiplier:

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 maximum upside is (115 - 105) x 100 = $1,000. If the stock reaches zero, the short put produces a 90 x 100 = $9,000 loss before any opening credit and costs. A $0.40 net debit subtracts $40 from every row; a $0.40 net credit adds $40. These amounts are hypothetical and ignore taxes.

When supported, enter the legs as one complex limit order with a net price. Cboe documents package execution for eligible complex orders, but eligibility, routing, fills, and price improvement are not guaranteed. Entering legs separately can leave an unintended uncovered short option.

Risks and controls

  • Downside tail: at a zero stock price, the short put’s intrinsic loss approaches its strike times the multiplier, offset only by net premium and costs.
  • Capped reward: above the upper call strike, further stock gains do not increase expiration profit.
  • Assignment and exercise: either American-style short option can be assigned early; expiration processing can also create stock or cash obligations.
  • Account and margin: FINRA rules establish minimum requirements, while brokers may impose stricter approval, cash, margin, liquidation, or concentration rules.
  • Liquidity and execution: three bid/ask spreads, package availability, partial execution, fees, and a non-executable midpoint can change the economics.
  • Path and event risk: before expiration, spot, implied volatility, skew, time, rates, dividends, halts, and corporate actions affect value and assignment incentives.
  • Contract mismatch: different expirations, ratios, multipliers, deliverables, exercise styles, or settlement terms invalidate the stated payoff.

Choose the put strike only if the resulting stock-purchase obligation is acceptable, verify every contract specification, stress a severe decline, and define exit and expiration instructions before entry.

Common misconceptions

  • “Zero premium means zero risk.” It describes the opening cash flow, not the downside obligation.
  • “The short put only finances the call.” Assignment can require purchasing the stock at the put strike.
  • “Capped profit means capped loss.” The call spread is capped; the uncovered downside below the put strike remains substantial.
  • “Every seagull has this payoff.” FX, commodity, hedged-underlying, and structured-product conventions can use different legs.
  • “A quoted midpoint is an available package price.” A displayed price is not a guaranteed execution.
  • “The same margin treatment applies everywhere.” Product, account type, broker policy, and jurisdiction can change the requirement.

Primary sources

Navigation

Search the wiki...