Option Strategies
Bull Put Spread
Introduction
Bull put spread, also known as long put spread, consists of buying an OTM put and selling an ITM put. Both puts have the same underlying Equity and the same expiration date. The OTM put serves as a hedge for the ITM put. The bull put spread profits from a rise in underlying asset price.
Implementation
Follow these steps to implement the bull put spread strategy:
- In the
Initialize
method, set the start date, end date, cash, and Option universe. - In the
OnData
method, select the expiration and strikes of the contracts in the strategy legs. - In the
OnData
method, call theOptionStrategies.BullPutSpread
method and then submit the order.
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))
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 expiration 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 strikes 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 expiration 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 strikes from the remaining contracts put_strikes = sorted([x.Strike for x in puts]) otm_strike = put_strikes[0] itm_strike = put_strikes[-1]
var optionStrategy = OptionStrategies.BullPutSpread(_symbol, itmStrike, otmStrike, expiry); Buy(optionStrategy, 1);
option_strategy = OptionStrategies.BullPutSpread(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 False
false
. 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)
Strategy Payoff
This is a limited-reward-limited-risk strategy. The payoff is
$$ \begin{array}{rcll} P^{OTM}_T & = & (K^{OTM} - S_T)^{+}\\ P^{ITM}_T & = & (K^{ITM} - S_T)^{+}\\ P_T & = & (P^{OTM}_T - P^{ITM}_T + P^{ITM}_0 - P^{OTM}_0)\times m - fee\\ \end{array} $$ $$ \begin{array}{rcll} \textrm{where} & P^{OTM}_T & = & \textrm{OTM put value at time T}\\ & P^{ITM}_T & = & \textrm{ITM put value at time T}\\ & S_T & = & \textrm{Underlying asset price at time T}\\ & K^{OTM} & = & \textrm{OTM put strike price}\\ & K^{ITM} & = & \textrm{ITM put strike price}\\ & P_T & = & \textrm{Payout total at time T}\\ & P^{ITM}_0 & = & \textrm{ITM put value at position opening (credit received)}\\ & P^{OTM}_0 & = & \textrm{OTM put value at position opening (debit paid)}\\ & m & = & \textrm{Contract multiplier}\\ & T & = & \textrm{Time of expiration} \end{array} $$The following chart shows the payoff at expiration:

The maximum profit is the net credit you received when opening the position, $P^{ITM}_0 - P^{OTM}_0$. If the underlying price is higher than the strike prices of both put contracts at expiration, both puts expire worthless.
The maximum loss is $K^{ITM} - K^{OTM} + P^{ITM}_0 - P^{OTM}_0$.
If the Option is American Option, there is a risk of early assignment on the sold contract.
Example
The following table shows the price details of the assets in the algorithm:
Asset | Price ($) | Strike ($) |
---|---|---|
OTM put | 5.70 | 767.50 |
ITM put | 35.50 | 835.00 |
Underlying Equity at expiration | 829.08 | - |
Therefore, the payoff is
$$ \begin{array}{rcll} P^{OTM}_T & = & (K^{OTM} - S_T)^{+}\\ & = & (767.50-829.08)^{+}\\ & = & 0\\ P^{ITM}_T & = & (K^{ITM} - S_T)^{+}\\ & = & (835.00-829.08)^{+}\\ & = & 5.92\\ P_T & = & (P^{OTM}_T - P^{ITM}_T + P^{ITM}_0 - P^{OTM}_0)\times m - fee\\ & = & (0-5.92+35.50-5.70)\times100-1.00\times2\\ & = & 2386\\ \end{array} $$So, the strategy profits $2,386.
The following algorithm implements a bull put spread strategy: