Today I established a Bullish Seagull position on XLK. Since this is the first Seagull I've posted here, I thought it would be a good idea to go over the analysis using Thinkorswim (TOS).
This Bullish Seagull (Short Put + Long Call + Short Call) position has the following possible outcomes for minimum and maximum profit:
Minimum profit if all options are OTM at expiration (i.e above the short put and below the long call).
| Stock | Strikes | ExpDate | Days | ProbOTM | Margin | P/L | ROI | AROI |
|---|---|---|---|---|---|---|---|---|
| XLV | 107/113/114 | 8/28/2020 | 17 | 72% | $10,700.00 | $47.97 | 0.45% | 9.63% |
Maximum profit if both call options are ITM at expiration (i.e above the short call).
| Stock | Strikes | ExpDate | Days | ProbITM | Margin | P/L | ROI | AROI |
|---|---|---|---|---|---|---|---|---|
| XLV | 107/113/114 | 8/28/2020 | 17 | 38% | $10,700.00 | $147.97 | 1.38% | 29.69% |
The following Ichimoku daily chart shows XLK in a solid uptrend above the cloud. I've drawn price lines at the short put and short call levels. Any price above the short call ($114) will result in max profit, and any price above the short put ($107) and below the long call ($113) will result in the min profit. The vertical line is the Aug 28 expiration.
The risk graph shows the profit zones, upper and lower strikes, and breakeven level. At the top are the probabilities of being within those ranges (27.35% below $107, 33.93% between $107 and $114, and 38.72% being above $114). As you can see, it's also a lopsided seagull, with more room between strikes to the downside, where all the risk is. This is by design.
The short put had a 72% probability of being OTM, which is below my goal of 80%, but still acceptable for the premium received and the short duration (17 days).
I hope this has been helpful.
