The little read sequel to Jonathan Livingston's Seagull. Basically, an attempt to create a Bourne Identity-style universe, only the spy character at the center of the ongoing story...is a seagull. It, uh...didn’t sell well.
In finance, the term relates to a strategy in options trading, often used in the currency market. The seagull option has three legs. (Just like a seagull? The name here needs some work.) Depending on which direction you're looking to create (bull or bear), the strategy either consists of a call and two puts...or a put and two calls.
The seagull option provides a one-way defense. You can set one up to protect you from a bet going bad because the price of the underlying asset (again, often a currency) rises. Or you can set one up to protect you from the bet going wrong because the asset price declines. But you can't use the seagull to protect you on both ends.
Part of the value of the seagull option is that the hedge you create comes without a cost. It involves both selling option contracts and buying other ones, using the premiums earned from the sales to pay for the contracts you buy.
For instance, one construction would involve buying a call at one strike price, while selling another call at a different strike. Meanwhile, you'd also sell a put. The contracts you sell allow you to pay for the one you've bought, while simultaneously setting up a hedge against unfavorable movement in the underlying asset.
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Finance: What is a Derivative?23 Views
finance a la shmoop what is a derivative? well it's derived it's a something taken
from something else like a derivative of hot weather is thirst a derivative of [Girl takes sip of glass of water on a beach]
hunger is well you know crankiness that's diva thing you get there...
derivative of a 1/32 quarterback rating in the NFL is like serious wealth yeah
yeah discount double shmoop yeah look for it be on there with aaron
and a derivative of a stock or bond or other security is a something which
derives its value based on the performance of that underlying security
there are basically two flavors of derivative put options ie the right to [Ice cream flavors appear]
sell a security at a given price over a given time period and a call option, ie
right to buy a security at a given price over a given time period
well the price of that option is derived from the price of the security and a few
other factors like strike prices and duration and all that stuff
colonel electric the downgraded new version of General Electric is trading [Colonel Electric appears in a suit]
for 25 bucks a share a derivative of its share price is sold in the form of a
call option with a $30 strike price expiring about 90 days from now on the
third Friday of the end of that month well investors pay a price albeit
probably a small one for the right to then pay 30 bucks a share for colonel [Call option appears for colonel electric]
electric at any time in the next 90 ish days until that option expires making the bet
that the stock will go well above 30 bucks a share in that time period that
call option is thus a derivative of the colonel electric primary stock price got
it if you really want to get personal well here's the ultimate form of
derivative [Baby laying down]
Up Next
What is a put option? A put option is a type of contract that lets the investor sell shares of a stock at a certain price and within a window of ti...
What is a call option? A call option is a type of contract that lets the investor buy shares of a stock at a certain price and within a window of t...