Option Strategies

Follow these steps to implement the long iron condor 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, 1);
    SetCash(100000);

    var option = AddOption("GOOG", Resolution.Minute);
    _symbol = option.Symbol;
    option.SetFilter(universe => universe.Strikes(-10, 10)
                                         .Expiration(TimeSpan.FromDays(0), TimeSpan.FromDays(30)));
}

def Initialize(self) -> None:
    self.SetStartDate(2017, 2, 1)
    self.SetEndDate(2017, 3, 1)
    self.SetCash(300000)

    option = self.AddOption("GOOG", Resolution.Minute)
    self.symbol = option.Symbol
    option.SetFilter(-10, 10, timedelta(0), timedelta(30))

2. In the OnData method, select 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;

    // Separate the call and put contracts
    var calls = chain.Where(x => x.Right == OptionRight.Call);
    var puts = chain.Where(x => x.Right == OptionRight.Put);
    if (calls.Count() == 0 || puts.Count() == 0) return;

    // Sort the contracts by their strike prices
    var callContracts = calls.OrderByDescending(x => x.Strike);
    var putContracts = puts.OrderBy(x => x.Strike);

    // Select the contracts in the strategy legs
    var farCallContract = callContracts.First();
    var farPutContract = putContracts.First();
    var nearCallContract = callContracts.Skip(2).First();
    var nearPutContract = putContracts.Skip(2).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

    # Separate the call and put contracts
    call = [i for i in chain if i.Right == 0]
    put = [i for i in chain if i.Right == 1]
    if len(call) == 0 or len(put) == 0 : return

    # Sort the contracts by their strike prices
    call_contracts = sorted(call, key = lambda x: x.Strike, reverse=True)
    put_contracts = sorted(put, key = lambda x: x.Strike)

    # Select the contracts in the strategy legs
    near_put = call_contracts[1]
    near_call = put_contracts[1]
    far_call = call_contracts[0]
    far_put = put_contracts[0]

3. In the OnData method, create the order legs and then call the ComboMarketOrder method.

var legs = new List<Leg>
{
    Leg.Create(nearCallContract.Symbol, 1),
    Leg.Create(nearPutContract.Symbol, 1),
    Leg.Create(farCallContract.Symbol, -1),
    Leg.Create(farPutContract.Symbol, -1)
};
ComboMarketOrder(legs, 1);

legs = [
    Leg.Create(near_call.Symbol, 1),
    Leg.Create(near_put.Symbol, 1),
    Leg.Create(far_call.Symbol, -1),
    Leg.Create(far_put.Symbol, -1)
]
self.ComboMarketOrder(legs, 1)

The iron condor can be long or short.

Long Iron Condor

This is a limited-reward-limited-risk strategy. The payoff is

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

The following chart shows the payoff at expiration:

The maximum profit is $K^C_{far} - K^C_{near} - C^{near}_0 - P^{near}_0 + C^{far}_0 + P^{far}_0$, where $K^P_{OTM} > S_T$ or $S_T > K^C_{OTM}$.

The maximum loss is the net debit paid: $C^{far}_0 + P^{far}_0 - C^{near}_0 - P^{near}_0$, where $K^P_{OTM} < S_T < K^C_{OTM}$.

If the Option is American Option, there is a risk of early assignment on the sold contracts.

Short Iron Condor

This is a limited-reward-limited-risk strategy. The payoff is

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

The following chart shows the payoff at expiration:

The maximum profit is the net credit received after commission when opening the trade, where $K^P_{OTM} < S_T < K^C_{OTM}$.

The maximum loss is $K^C_{far} - K^C_{near} + C^{near}_0 + P^{near}_0 - C^{far}_0 - P^{far}_0$, where $K^P_{OTM} > S_T$ or $S_T > K^C_{OTM}$.

If the Option is American Option, there is risk of early assignment on the sold contracts.

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

Asset	Price ($)	Strike ($)
Far-OTM call	1.85	857.50
Far-OTM put	2.75	810.00
Near-OTM call	1.35	855.00
Near-OTM put	2.15	815.00
Underlying Equity at expiration	851.20	-

Therefore, the payoff is

$$ \begin{array}{rcll} C^{far}_T & = & (S_T - K^C_{far})^{+}\\ & = & (851.20-857.50)^{+}\\ & = & 0\\ C^{near}_T & = & (S_T - K^C_{near})^{+}\\ & = & (851.20-855.00)^{+}\\ & = & 0\\ P^{far}_T & = & (K^P_{far} - S_T)^{+}\\ & = & (815.00-851.20)^{+}\\ & = & 0\\ P^{near}_T & = & (K^P_{near} - S_T)^{+}\\ & = & (810.00-851.20)^{+}\\ & = & 0\\ P_T & = & (C^{near}_T + P^{near}_T - C^{far}_T - P^{far}_T - C^{near}_0 - P^{near}_0 + C^{far}_0 + P^{far}_0)\times m - fee\\ & = & (0+0-0-0+1.35+2.15-1.85-2.75)\times100-1\times4\\ & = & -114 \end{array} $$

So, the strategy losses $114.

The following algorithm implements a long iron condor Option strategy: