Seagull Strategy: Reducing Costs in Derivative Trading

Imagine you think something's price will go up, but it might hit a wall.

Instead of just buying, you can use a 'seagull' strategy.

This means buying a bet that it will go up (a call option), selling a bet that it won't go up too high (another call), and also selling a bet that it won't go down too much (a put option).

The seagull strategy could allow traders to make similar directional bets while requiring less margin.

However, there is risk if the underlying price falls.

If the price drops significantly, you could lose money.

Setting a stop-loss can mitigate risk at three levels.

The strategy is an alternative to futures if you want to trade options.