The Seagull Spread Strategy is an advanced options combination used primarily in currency and commodity markets to create a directional, low-cost position with limited upside and downside risk. It involves a mix of call and put options to build a defined-risk, asymmetrical payoff, and is often used by traders or hedgers to express a moderate bullish or bearish view without paying high premiums.

The name “seagull” comes from the payoff graph, which resembles a bird in flight, with a flat body and upward or downward wings depending on the strategy’s orientation.

What Is a Seagull Spread?

A Seagull Spread typically involves:

• Buying an option (call or put) for directional exposure
• Selling a closer out-of-the-money option to reduce the premium
• Selling a further out-of-the-money option on the opposite side to finance the trade

It can be structured as:

• Bullish Seagull: Buy call, sell higher call, sell lower put
• Bearish Seagull: Buy put, sell lower put, sell higher call

This creates a position that is net credit, net zero, or low debit, depending on volatility and skew.

Strategy Objective

• Express a moderate directional view (bullish or bearish)
• Reduce or eliminate option premium costs
• Cap risk on both sides with limited but sufficient reward
• Hedge or speculate around a target zone or range

Bullish Seagull Spread Example (EUR/USD)

Assume EUR/USD is at 1.0800

Structure:

• Buy 1.0800 Call (ATM)
• Sell 1.1000 Call (OTM)
• Sell 1.0600 Put (OTM)

Outcomes:

• Max profit: If EUR/USD settles at 1.1000
• Max loss: If EUR/USD falls below 1.0600
• Break-even range: Between 1.0600 and 1.1000, with best profit near upper strike
• Net premium: Often zero or a small credit

Use case: Expecting gradual EUR/USD rise but want to offset option cost by giving up extreme downside protection

Bearish Seagull Spread Example (GBP/USD)

GBP/USD at 1.2700

Structure:

• Buy 1.2700 Put
• Sell 1.2500 Put
• Sell 1.2900 Call

Outcomes:

• Max profit: If GBP/USD ends at 1.2500
• Max loss: If GBP/USD rises above 1.2900
• Profits from modest decline, while exposure to sharp rallies is capped

Use case: Expecting limited GBP weakness and want to hedge without upfront cost

Key Characteristics

• Cost-efficient: Reduces or eliminates net premium
• Defined risk: Known max loss, unlike short straddles/strangles
• Customisable: Strike distances control the risk/reward shape
• Directional bias: Unlike iron condors or butterflies, seagulls are not neutral

When to Use the Seagull Strategy

• When you expect moderate movement, not extreme volatility
• In FX markets where vol skew allows attractive premiums
• For hedging currency exposure within a forecast range
• During periods of high IV (selling wings becomes more rewarding)

Risks and Considerations

• Exposure to tail risk beyond the outer short strike
• Limited profit if underlying stagnates
• Needs careful strike selection to balance risk and payoff
• Requires margin for uncovered short option leg (especially in retail accounts)

Advantages of Seagull Spreads

• Cheap to implement, often net zero or credit
• Good for expressing targeted directional views
• Easy to manage and hedge compared to complex multi-leg spreads
• Popular in institutional FX and commodities hedging strategies

Conclusion

The Seagull Spread Strategy is a smart, low-cost way to express directional views or hedge in FX and commodities. By capping risk while offsetting premium costs through short wings, traders can construct a flexible payoff that fits their market view and capital constraints.

To master how to build, price, and manage seagull spreads within a broader volatility and macro framework, enrol in our Trading Courses and gain institutional skills in options structuring and execution.