Seagull Sterling option

I did a Seagull sterling option trade today, which consists of buying an option and selling a strangle for the same expiry.

Here’s the trade:

Bought a GBP put / USD call at 1.5500.

Sold a GBP call/ USD put at 1.5950.

Sold a GBP put/ USD call at 1.5200.

Tenor: 2 months.

Why?

Even though cable has been fairly bullish lately, I still think fundamentally cable should be lower. So I decided to play a trade for 2 months, when I do expect cable to come down lower. As cable has rallied a lot, I decided to buy a put and to finance the put I decided to sell a strangle.

Risk?

If sterling hits above 1.5950 on expiry, I’ll risk holding a sell position at that level.

If sterling stays between 1.5500 and 1.5950, nothing happens.

If sterling drops below 1.5500, I’ll hold a sell position at 1.5500.

If sterling drops below 1.5200, I make a profit of 300 pips!

So my risk is really, sterling heading above 1.5950.

I’m pretty confident with this deal, but I’ll have to watch over it.