# Option Strategies

## Long Iron Condor

### Introduction

The Long Iron Condor is an Option strategy that consists of four contracts. All the contracts have the same underlying Equity and expiration, but the order of strike prices is $A>B>C>D$. The following table describes the strike prices of each contract:

PositionStrike
1 far-OTM call $A$
-1 near-OTM call $B$, where $B > underlying\ price$
-1 near-OTM put $C$, where $C < underlying\ price$
1 far-OTM put $D$, where $C-D = A-B$

The long iron condor consists of buying a far OTM call, buying a far OTM put, selling a near ATM call, and selling a near ATM put. This strategy profits from an decrease in price movement (implied volatility) and time decay since ATM options decay sharper.

### Implementation

Follow these steps to implement the long iron condor 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(2017, 2, 1);
SetEndDate(2017, 3, 1);
SetCash(500000);

UniverseSettings.Asynchronous = true;
_symbol = option.Symbol;
option.SetFilter(universe => universe.IncludeWeeklys().IronCondor(30, 5, 10));
}
def initialize(self) -> None:
self.set_start_date(2017, 2, 1)
self.set_end_date(2017, 3, 1)
self.set_cash(500000)

self.universe_settings.asynchronous = True
self._symbol = option.symbol
option.set_filter(lambda universe: universe.include_weeklys().iron_condor(30, 5, 10))

The IronCondoriron_condor filter narrows the universe down to just the four contracts you need to form a long iron condor.

3. In the OnDataon_data method, select the contracts in the strategy legs.
4. public override void OnData(Slice slice)
{
if (Portfolio[_symbol.Underlying].Invested)
{
Liquidate();
}

if (Portfolio.Invested || !IsMarketOpen(_symbol) ||
!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 < 2 || callContracts.Length < 2) return;

// Select the strategy legs
var nearCall = callContracts[0];
var farCall = callContracts[1];
var nearPut = putContracts[1];
var farPut = putContracts.Single(x => x.Strike == nearPut.Strike - farCall.Strike + nearCall.Strike);
def on_data(self, slice: Slice) -> None:
if self.portfolio[self._symbol.underlying].invested:
self.liquidate()

if self.portfolio.invested or not self.is_market_open(self._symbol):
return

chain = slice.option_chains.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) < 2 or len(put_contracts) < 2:
return

# Select the strategy legs
near_call = call_contracts[0]
far_call = call_contracts[1]
near_put = put_contracts[1]
far_put = [x for x in put_contracts if x.Strike == near_put.strike - far_call.strike + near_call.strike][0]
5. In the OnDataon_data method, place the orders.
6. Approach A: Call the OptionStrategies.IronCondorOptionStrategies.iron_condor method with the details of each leg and then pass the result to the Buybuy method.

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

iron_condor = OptionStrategies.iron_condor(
self._symbol,
far_put.strike,
near_put.strike,
near_call.strike,
far_call.strike,
expiry)

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 legs = new List<Leg>()
{
Leg.Create(farPut.Symbol, 1),
Leg.Create(nearPut.Symbol, -1),
Leg.Create(farCall.Symbol, 1),
Leg.Create(nearCall.Symbol, -1)
};
ComboMarketOrder(legs, 1);
legs = [
Leg.create(far_put.symbol, 1),
Leg.create(near_put.symbol, -1),
Leg.create(far_call.symbol, 1),
Leg.create(near_call.symbol, -1)
]
self.combo_market_order(legs, 1)

### Strategy Payoff

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 a risk of early assignment on the contracts you sell.

### Example

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

AssetPrice ($)Strike ($)
Far-OTM call1.85857.50
Far-OTM put3.80815.00
Near-OTM call1.65852.50
Near-OTM put3.50820.00
Underlying Equity at expiration843.25-

Therefore, the payoff is

$$\begin{array}{rcll} C^{far}_T & = & (S_T - K^C_{far})^{+}\\ & = & (843.25-857.50)^{+}\\ & = & 0\\ C^{near}_T & = & (S_T - K^C_{near})^{+}\\ & = & (843.25-852.50)^{+}\\ & = & 0\\ P^{far}_T & = & (K^P_{far} - S_T)^{+}\\ & = & (815.00-843.25)^{+}\\ & = & 0\\ P^{near}_T & = & (K^P_{near} - S_T)^{+}\\ & = & (820.00-843.25)^{+}\\ & = & 0\\ P_T & = & (C^{near}_T + P^{near}_T - C^{far}_T - P^{far}_T - C^{near}_0 - P^{near}_0 + C^{far}_0 + P^{far}_0)\times m - fee\\ & = & (0+0-0-0+1.65+3.50-1.85-3.80)\times100-1\times4\\ & = & -54 \end{array}$$

So, the strategy loses \$54.

The following algorithm implements a long iron condor Option strategy:

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