Option Strategies

Follow these steps to implement the long call calendar spread strategy:

1. In the Initializeinitialize method, set the start date, end date, cash, and Option universe.

private Symbol _symbol;

public override void Initialize()
{
    SetStartDate(2017, 2, 1);
    SetEndDate(2017, 2, 19);
    SetCash(500000);
    UniverseSettings.Asynchronous = true;
    var option = AddOption("GOOG", Resolution.Minute);
    _symbol = option.Symbol;
    option.SetFilter(universe => universe.IncludeWeeklys().Strikes(-1, 1).Expiration(0, 62));
}

def initialize(self) -> None:
    self.set_start_date(2017, 2, 1)
    self.set_end_date(2017, 2, 19)
    self.set_cash(500000)
    self.universe_settings.asynchronous = True
    option = self.add_option("GOOG", Resolution.MINUTE)
    self._symbol = option.symbol
    option.set_filter(lambda universe: universe.include_weeklys().strikes(-1, 1).expiration(0, 62))

2. In the OnDataon_data method, select the expiration and strikes of the contracts in the strategy legs.

public override void OnData(Slice slice)
{
    if (Portfolio.Invested) return;

    // Get the OptionChain
    var chain = slice.OptionChains.get(_symbol, null);
    if (chain == null || chain.Count() == 0) return;

    // Get the ATM strike
    var atmStrike = chain.OrderBy(x => Math.Abs(x.Strike - chain.Underlying.Price)).First().Strike;

    // Select the ATM call Option contracts
    var calls = chain.Where(x => x.Strike == atmStrike && x.Right == OptionRight.Call);
    if (calls.Count() == 0) return;

    // Select the near and far expiry dates
    var expiries = calls.Select(x => x.Expiry).OrderBy(x => x);
    var nearExpiry = expiries.First();
    var farExpiry = expiries.Last();

def on_data(self, slice: Slice) -> None:
    if self.portfolio.invested: return

    # Get the OptionChain
    chain = slice.option_chains.get(self.symbol, None)
    if not chain: return

    # Get the ATM strike
    atm_strike = sorted(chain, key=lambda x: abs(x.strike - chain.underlying.price))[0].strike

    # Select the ATM call Option contracts
    calls = [i for i in chain if i.strike == atm_strike and i.right == OptionRight.CALL]
    if len(calls) == 0: return

    # Select the near and far expiry dates
    expiries = sorted([x.expiry for x in calls])
    near_expiry = expiries[0]
    far_expiry = expiries[-1]

3. In the OnDataon_data method, call the OptionStrategies.CallCalendarSpread method and then submit the order.

var optionStrategy = OptionStrategies.CallCalendarSpread(_symbol, atmStrike, nearExpiry, farExpiry);
Buy(optionStrategy, 1);

option_strategy = OptionStrategies.call_calendar_spread(self.symbol, atm_strike, near_expiry, far_expiry)
self.buy(option_strategy, 1)

Option strategies synchronously execute by default. To asynchronously execute Option strategies, set the asynchronous argument to Falsefalse. You can also provide a tag and order properties to the Buy method.

Buy(optionStrategy, quantity, asynchronous, tag, orderProperties);

self.Buy(option_strategy, quantity, asynchronous, tag, order_properties)

The long call calendar spread is a limited-reward-limited-risk strategy. The payoff at the shorter-term expiration is

$$ \begin{array}{rcll} C^{\textrm{short-term}}_T & = & (S_T - K)^{+}\\ P_T & = & (C^{\textrm{long-term}}_T - C^{\textrm{short-term}}_T + C^{\textrm{short-term}}_0 - C^{\textrm{long-term}}_0)\times m - fee\\ \end{array} $$ $$ \begin{array}{rcll} \textrm{where} & C^{\textrm{short-term}}_T & = & \textrm{Shorter term call value at time T}\\ & C^{\textrm{long-term}}_T & = & \textrm{Longer term call value at time T}\\ & S_T & = & \textrm{Underlying asset price at time T}\\ & K & = & \textrm{Strike price}\\ & P_T & = & \textrm{Payout total at time T}\\ & C^{\textrm{short-term}}_0 & = & \textrm{Shorter term call value at position opening (credit received)}\\ & C^{\textrm{long-term}}_0 & = & \textrm{Longer term call value at position opening (debit paid)}\\ & m & = & \textrm{Contract multiplier}\\ & T & = & \textrm{Time of shorter term call expiration} \end{array} $$

The following chart shows the payoff at expiration:

The maximum profit is undetermined because it depends on the underlying volatility. It occurs when $S_T = S_0$ and the spread of the calls are at their maximum.

The maximum loss is the net debit paid, $C^{\textrm{short-term}}_0 - C^{\textrm{long-term}}_0$. It occurs when the underlying price moves very deep ITM or OTM so the values of both calls are close to zero.

If the Option is American Option, there is risk of early assignment on the sold contract. If the buyer exercises the call you sell, you could lose all the debit you received if you don't close the long call and the underlying price drops below the long call strike price.

The following table shows the price details of the assets in the long call calendar spread:

Asset	Price ($)	Strike ($)
Longer-term call at the start of the trade	4.40	835.00
Shorter-term call at the start of the trade	36.80	767.50
Longer-term call at time $T$	31.35	835.00
Underlying Equity at time $T$	829.08	-

Therefore, the payoff at time $T$ (the expiration of the short-term call) is

$$ \begin{array}{rcll} C^{\textrm{short-term}}_T & = & (S_T - K)^{+}\\ & = & (828.07-800.00)^{+}\\ & = & 28.07\\ P_T & = & (C^{\textrm{long-term}}_T - C^{\textrm{short-term}}_T + C^{\textrm{short-term}}_0 - C^{\textrm{long-term}}_0)\times m - fee\\ & = & (31.35-28.07+11.30-20.00)\times100-1.00\times2\\ & = & -544 \end{array} $$

So, the strategy losses $544.

The following algorithm implements a long call calendar spread Option strategy: