which seagull spread provides unlimited downside protection

CFA Level III
#1

Which seagull spread provides unlimited downside protection? I try to draw the payout diagram as well.

  1. bear spread + short otm call

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  1. long 25 delta call, long 25 delta put, short ATM call

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#2
  1. bear spread combination probably doesn’t so between 2 choices above I’d choose 2). But take it with reserve:)
#3

i agree too. Number 2 profits from prices going down.

#4

Take your diagrams and add a long position in the underlying.

It will be clear which one provides unlimited downside protection.

(Hint: it isn’t #1.)

#5

Got it, Thank you S2000.

#6

You’re welcome.