Seagull (3 Way Collar)

Seagull product is a structured product which is done generaly for hedging purposes. Seagull can be an alternative for the Collar product by modifying the band levels to better levels for the hedger. The drawback of seagull is the existance of the cap level for the hedger’s profit potential. There are two band levels like a Collar but also there is a cap level for the profit potential.

For example if a hedger uses Seagull product to buy USD/TRY parity at the expiry date, the hedger will make profit when spot rate at maturity is higher than the upper band level like at the Collar product. The maximum profit that the hedger can make is determined by the difference between the cap level and upper band level. When spot rate at the expiry date is higher than the cap level, hedger can only make profit upto cap level.


If the hedger does not want to use leverage and expects that the volatility of the market will not increase so much, Seagull product can be a partial hedge. The band levels will be in favor of the hedger when compared with the Collar product. If the price of the underlying currency makes great move in favor of the product, hedger can not get the advante of the levels above/below the profit cap.


If market moves in favor of the Seagull products way, hedger makes the foreign currency transaction at a better rate than the spot rate.

- Hedgers has the advantage to speculate the market in a price range rather than fixing it.

Structure is costless.


-  If market moves against the way of the Seagull product hedger will make the transaction a worse rate than the spot rate.

If market moves in favor of the Seagull product, hedger can get the advantage until the profit cap level.

  • Financial Asset                                       : USD/TRY
  • Position at maturity                               : USD Long
  • Amount                                                     : USD 1,000,000
  • Spot Rate                                                 : 1.5500
  • Forward Rate                                          : 1.5580
  • Seagull Upper Band Level                   : 1.6000
  • Seagull Lower Band Level                  : 1.5200
  • Seagull Profit Cap Level                      : 1.6500
  • Tenor                                                        : 30 days

    When the above information is input to the pricing screen of Derivative Engines the market price of the Seagull is calculated. The product is priced by considering the real time bid / ask spreads of the options.

    The payoff chart of the above example is below

    Go Pricing

    Below you can find the payoff graphs of the option buyer and the option seller.

    • DE Pricing Engine
    Derivative Engines Real Time Option Pricing Engines are free for a limited time.
    Sign Up free...

    Sign in        Sign Up

    • What can you do with Derivative Engines ?

    Option Pricing
       - Single Vanilla Option
       - A Portfolio of Vanilla Options
       - Single Barrier Options
       - Binary Options
       More in research...

    Structured Products Pricing
       - Investment Products
       - Hedging Products
       - Trading Products
       More in research...

    Trading Strategy Auto Suggestor
       On research...