Option Strategies

Follow these steps to implement the bear put 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, 3, 5);
    SetCash(500000);

    UniverseSettings.Asynchronous = true;
    var option = AddOption("GOOG", Resolution.Minute);
    _symbol = option.Symbol;
    option.SetFilter(universe => universe.IncludeWeeklys().PutSpread(30, 5));
}

def initialize(self) -> None:
    self.set_start_date(2017, 2, 1)
    self.set_end_date(2017, 3, 5)
    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().put_spread(30, 5))

The PutSpreadput_spread filter narrows the universe down to just the two contracts you need to form a bear put spread.

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 ||
        !slice.OptionChains.TryGetValue(_symbol, out var chain))
    {
        return;
    }

    // Select the put Option contracts with the furthest expiry
    var expiry = chain.Max(x => x.Expiry);    
    var puts = chain.Where(x => x.Expiry == expiry && x.Right == OptionRight.Put);
    if (puts.Count() == 0) return;

    // Select the ITM and OTM contract strike prices from the remaining contracts
    var strikes = puts.Select(x => x.Strike).ToList();
    var otmStrike = strikes.Min();
    var itmStrike = strikes.Max();

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
    
    # Select the put Option contracts with the furthest expiry
    expiry = max([x.expiry for x in chain])
    puts = [i for i in chain if i.expiry == expiry and i.right == OptionRight.PUT]
    if not puts == 0:
        return

    # Select the ITM and OTM contract strike prices from the remaining contracts
    strikes = [x.strike for x in puts]
    otm_strike = min(strikes)
    itm_strike = max(strikes)

3. In the OnDataon_data method, select the contracts and place the orders.

Approach A: Call the OptionStrategies.BearPutSpreadOptionStrategies.bear_put_spread method with the details of each leg and then pass the result to the Buybuy method.

var optionStrategy = OptionStrategies.BearPutSpread(_symbol, itmStrike, otmStrike, expiry);
Buy(optionStrategy, 1);

option_strategy = OptionStrategies.bear_put_spread(self._symbol, itm_strike, otm_strike, expiry)
self.buy(option_strategy, 1)

Approach B: Create a list of Leg objects and then call the Combo Market Ordercombo_market_order, Combo Limit Ordercombo_limit_order, or Combo Leg Limit Ordercombo_leg_limit_order method.

var itmPut = puts.Single(x => x.Strike == itmStrike);
var otmPut = puts.Single(x => x.Strike == otmStrike);

var legs = new List<Leg>()
    {
        Leg.Create(itmPut.Symbol, 1),
        Leg.Create(otmPut.Symbol, -1)
    };
ComboMarketOrder(legs, 1);

itm_put = [x for x in puts if x.strike == itm_strike][0]
otm_put = [x for x in puts if x.strike == otm_strike][0]

legs = [
    Leg.create(itm_put.symbol, 1),
    Leg.create(otm_put.symbol, -1)
]
self.combo_market_order(legs, 1)

The bear put spread is a limited-reward-limited-risk strategy. The payoff is

$$ \begin{array}{rcll} P^{OTM}_T & = & (K^{OTM} - S_T)^{+}\\ P^{ITM}_T & = & (K^{ITM} - S_T)^{+}\\ P_T & = & (P^{ITM}_T - P^{OTM}_T + P^{OTM}_0 - P^{ITM}_0)\times m - fee\\ \end{array} $$ $$ \begin{array}{rcll} \textrm{where} & P^{OTM}_T & = & \textrm{OTM put value at time T}\\ & P^{ITM}_T & = & \textrm{ITM put value at time T}\\ & S_T & = & \textrm{Underlying asset price at time T}\\ & K^{OTM} & = & \textrm{OTM put strike price}\\ & K^{ITM} & = & \textrm{ITM put strike price}\\ & P_T & = & \textrm{Payout total at time T}\\ & P^{ITM}_0 & = & \textrm{ITM put value at position opening (debit paid)}\\ & P^{OTM}_0 & = & \textrm{OTM put value at position opening (credit received)}\\ & m & = & \textrm{Contract multiplier}\\ & T & = & \textrm{Time of expiration} \end{array} $$

The following chart shows the payoff at expiration:

The maximum profit is $K^{ITM} - K^{OTM} + P^{OTM}_0 - P^{ITM}_0$. If the underlying price is below than the strike prices of both put Option contracts, they are worth $(K - S_T)$ at expiration.

The maximum loss is the net debit you paid to open the position, $P^{OTM}_0 - P^{ITM}_0$. 

If the Option is American Option, there is a risk of early assignment on the contract you sell.

The following table shows the price details of the assets in the algorithm:

Asset	Price ($)	Strike ($)
OTM put	4.60	767.50
ITM put	40.00	835.00
Underlying Equity at expiration	829.08	-

Therefore, the payoff is

$$ \begin{array}{rcll} P^{OTM}_T & = & (K^{OTM} - S_T)^{+}\\ & = & (767.50-829.08)^{+}\\ & = & 0\\ P^{ITM}_T & = & (K^{ITM} - S_T)^{+}\\ & = & (835.00-829.08)^{+}\\ & = & 5.92\\ P_T & = & (P^{ITM}_T - P^{OTM}_T + P^{OTM}_0 - P^{ITM}_0)\times m - fee\\ & = & (5.92-0+4.60-40.00)\times100-1.00\times2\\ & = & -2950\\ \end{array} $$

So, the strategy loses $2,950.

The following algorithm implements a bear put spread strategy: