Option Strategies

Follow these steps to implement the call calendar 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, 2, 19);
    SetCash(500000);

    var option = AddOption("GOOG", Resolution.Minute);
    _symbol = option.Symbol;
    option.SetFilter(universe => universe.IncludeWeeklys()
                                            .Strikes(-1, 1)
                                            .Expiration(TimeSpan.FromDays(0), TimeSpan.FromDays(62)));
}

def Initialize(self) -> None:
    self.SetStartDate(2017, 2, 1)
    self.SetEndDate(2017, 2, 19)
    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.Strikes(-1, 1).Expiration(timedelta(0), timedelta(62))

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 == 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 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 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 OnData method, call the OptionStrategies.CallCalendarSpread method and then submit the order.

var optionStrategy = OptionStrategies.CallCalendarSpread(_symbol, atmStrike, nearExpiry, farExpiry);
Buy(optionStrategy, 1);        // if long call calendar spread
Sell(optionStrategy, 1);     // if short call calendar spread

option_strategy = OptionStrategies.CallCalendarSpread(self.symbol, atm_strike, near_expiry, far_expiry)
self.Buy(option_strategy, 1)    # if long call calendar spread
self.Sell(option_strategy, 1)   # if short call calendar spread

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 and Sell methods.

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

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

The call calendar spread can be long or short.

Long Call Calendar Spread

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.

Short Call Calendar Spread

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

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

The following chart shows the payoff at expiration:

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

The maximum loss is undetermined because it depends on the underlying volatility. It occurs when $S_T = S_0$ and the spread of the 2 calls are at their maximum.

If the Option is American Option, there is risk of early assignment on the sold contract. If you don't close the call positions together, the naked short call will have unlimited drawdown risk after the long call expires.

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

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: