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:

  1. In the Initializeinitialize method, set the start date, end date, cash, and Option universe.
    2. private Symbol _symbol;

public override void Initialize()
{
    SetStartDate(2024, 9, 1);
    SetEndDate(2024, 12, 31);
    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(2024, 9, 1)
    self.set_end_date(2024, 12, 31)
    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 bull put spread.

  2. In the OnDataon_data method, select the expiration and strikes of the contracts in the strategy legs.
    3. 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.

    4. Approach A: Call the OptionStrategies.BullPutSpreadOptionStrategies.bull_put_spread method with the details of each leg and then pass the result to the Buybuy method.

    var optionStrategy = OptionStrategies.BullPutSpread(_symbol, itmStrike, otmStrike, expiry);
Buy(optionStrategy, 1);
    option_strategy = OptionStrategies.bull_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)

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:

Strategy payoff decomposition and analysis of bear call spread

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 $K^{OTM} - K^{ITM} + P^{ITM}_0 - P^{OTM}_0$.

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

Example

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

AssetPrice ($)Strike ($)
OTM put5.70767.50
ITM put35.50835.00
Underlying Equity at expiration829.08-

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:

public class BullPutSpreadExmapleAlgorithm : QCAlgorithm
{
    private Symbol _symbol;

    public override void Initialize()
    {
        SetStartDate(2024, 9, 1);
        SetEndDate(2024, 12, 31);
        SetCash(500000);

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

        var optionStrategy = OptionStrategies.BullPutSpread(_symbol, itmStrike, otmStrike, expiry);
        Buy(optionStrategy, 1);
    }
}
class BullPutSpreadStrategy(QCAlgorithm): 
    def initialize(self) -> None:
        self.set_start_date(2024, 9, 1)
        self.set_end_date(2024, 12, 31)
        self.set_cash(500000)

        option = self.add_option("GOOG", Resolution.MINUTE)
        self.symbol = option.symbol
        option.set_filter(self.universe_func)

    def universe_func(self, universe: OptionFilterUniverse) -> OptionFilterUniverse:
        return universe.include_weeklys().put_spread(30, 5)

    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 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]

        option_strategy = OptionStrategies.bull_put_spread(self.symbol, itm_strike, otm_strike, expiry)
        self.buy(option_strategy, 1)

Other Examples

For more examples, see the following algorithms:

Demonstration Algorithm
IndexOptionBullPutSpreadAlgorithm.py Python IndexOptionBullPutSpreadAlgorithm.cs C#

You can also see our Videos. You can also get in touch with us via Discord.

Did you find this page helpful?

Contribute to the documentation: