Option Strategies

Follow these steps to implement the bear put spread strategy:

1. In the Initialize 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);

    var option = AddOption("GOOG", Resolution.Minute);
    _symbol = option.Symbol;
    option.SetFilter(universe => universe.IncludeWeeklys()
                                         .Strikes(-15, 15)
                                         .Expiration(TimeSpan.FromDays(0), TimeSpan.FromDays(31)));
}

def Initialize(self) -> None:
    self.SetStartDate(2017, 2, 1)
    self.SetEndDate(2017, 3, 5)
    self.SetCash(500000)

    option = self.AddOption("GOOG", Resolution.Minute)
    self.symbol = option.Symbol
    option.SetFilter(self.UniverseFunc)

def UniverseFunc(self, universe: OptionFilterUniverse) -> OptionFilterUniverse:
    return universe.IncludeWeeklys().Strikes(-15, 15).Expiration(timedelta(0), timedelta(31))

2. In the OnData 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.Count() == 0) return;

    // Get the furthest expiry date of the contracts
    var expiry = chain.OrderByDescending(x => x.Expiry).First().Expiry;
    
    // Select the put Option contracts with the furthest 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 putStrikes = puts.Select(x => x.Strike).OrderBy(x => x);
    var itmStrike = putStrikes.Last();
    var otmStrike = putStrikes.First();

def OnData(self, slice: Slice) -> None:
    if self.Portfolio.Invested: return

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

    # Get the furthest expiry date of the contracts
    expiry = sorted(chain, key = lambda x: x.Expiry, reverse=True)[0].Expiry
    
    # Select the put Option contracts with the furthest expiry
    puts = [i for i in chain if i.Expiry == expiry and i.Right == OptionRight.Put]
    if len(puts) == 0: return

    # Select the ITM and OTM contract strike prices from the remaining contracts
    put_strikes = sorted([x.Strike for x in puts])
    otm_strike = put_strikes[0]
    itm_strike = put_strikes[-1]

3. In the OnData method, call the OptionStrategies.BearPutSpread method and then submit the order.

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

option_strategy = OptionStrategies.BearPutSpread(self.symbol, itm_strike, otm_strike, 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 methods.

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

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

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 sold contract.

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 losses $2,950.

The following algorithm implements a bear put spread strategy: