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(500000);

    var option = AddOption("GOOG");
    _symbol = option.Symbol;
    option.SetFilter(universe =>
        universe.IncludeWeeklys().Strikes(-15, 15).Expiration(0, 40));
}

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

    option = self.AddOption("GOOG")
    self.symbol = option.Symbol
    option.SetFilter(lambda universe:
        universe.IncludeWeeklys().Strikes(-15, 15).Expiration(0, 40))

2. In the OnData method, select the contracts in the strategy legs.

public override void OnData(Slice slice)
{
    if (Portfolio[_symbol.Underlying].Invested)
    {
        Liquidate();
    }

    if (Portfolio.Invested || !IsMarketOpen(_symbol)) return;

    if (!slice.OptionChains.TryGetValue(_symbol, out var chain)) return;

    // Find put and call contracts with the farthest expiry
    var expiry = chain.Max(x => x.Expiry);
    var contracts = chain.Where(x => x.Expiry == expiry).OrderBy(x => x.Strike);

    var putContracts = contracts.Where(x => x.Right == OptionRight.Put).ToArray();
    var callContracts = contracts.Where(x => x.Right == OptionRight.Call).ToArray();

    if (putContracts.Length < 10 || putContracts.Length < 10) return;

    // Select the strikes in the strategy legs
    var farPut = putContracts[0].Strike;
    var nearPut = putContracts[10].Strike;
    var nearCall = callContracts[^10].Strike;
    var farCall = callContracts[^1].Strike;

def OnData(self, slice: Slice) -> None:
    if self.Portfolio[self.symbol.Underlying].Invested:
        self.Liquidate()

    if self.Portfolio.Invested or not self.IsMarketOpen(self.symbol):
        return

    chain = slice.OptionChains.get(self.symbol)
    if not chain:
        return

    # Find put and call contracts with the farthest expiry       
    expiry = max([x.Expiry for x in chain])
    chain = sorted([x for x in chain if x.Expiry == expiry], key = lambda x: x.Strike)

    put_contracts = [x for x in chain if x.Right == OptionRight.Put]
    call_contracts = [x for x in chain if x.Right == OptionRight.Call]

    if len(call_contracts) < 10 or len(put_contracts) < 10:
        return

    # Select the strikes in the strategy legs
    far_put = put_contracts[0].Strike
    near_put = put_contracts[10].Strike
    near_call = call_contracts[-10].Strike
    far_call = call_contracts[-1].Strike

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

var ironCondor = OptionStrategies.IronCondor(
    _symbol, 
    farPut,
    nearPut,
    nearCall,
    nearPut,
    expiry);

Buy(ironCondor, 2);

iron_condor = OptionStrategies.IronCondor(
    self.symbol, 
    far_put,
    near_put,
    near_call,
    far_call,
    expiry)

self.Buy(iron_condor, 2)

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: