Option Strategies

Follow these steps to implement the long straddle 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, 4, 1);
    SetEndDate(2017, 6, 30);
    SetCash(100000);

    var option = AddOption("GOOG");
    _symbol = option.Symbol;
    option.SetFilter(-1, 1, 30, 60);
}

def Initialize(self) -> None:
    self.SetStartDate(2017, 4, 1)
    self.SetEndDate(2017, 6, 30)
    self.SetCash(100000)
        
    option = self.AddOption("GOOG")
    self.symbol = option.Symbol
    option.SetFilter(-1, 1, 30, 60)

2. In the OnData method, select the expiration date and strike price of the contracts in the strategy legs.

public override void OnData(Slice slice)
{
    if (Portfolio.Invested || 
        !slice.OptionChains.TryGetValue(_symbol, out var chain))
    {
        return;
    }

    // Find ATM options with the nearest expiry
    var expiry = chain.Min(contract => contract.Expiry);
    var contracts = chain.Where(contract => contract.Expiry == expiry)
                         .OrderBy(contract => Math.Abs(contract.Strike - chain.Underlying.Price))
                         .ToArray();

    if (contracts.Length < 2) return;

def OnData(self, slice: Slice) -> None:
    if self.Portfolio.Invested:
        return

    chain = slice.OptionChains.get(self.symbol, None)
    if not chain:
        return

    # Find ATM options with the nearest expiry
    expiry = min([x.Expiry for x in chain])
    contracts = sorted([x for x in chain if x.Expiry == expiry],
        key=lambda x: abs(chain.Underlying.Price - x.Strike))

    if len(contracts) < 2:
        return

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

var longStraddle = OptionStrategies.Straddle(_symbol, contracts[0].Strike, expiry);
Buy(longStraddle, 1);

long_straddle = OptionStrategies.Straddle(self.symbol, contracts[0].Strike, expiry)
self.Buy(long_straddle, 1)

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 method.

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

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

The payoff of the strategy is

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

The following chart shows the payoff at expiration:

The maximum profit is unlimited if the underlying price rises to infinity or substantial, $K^{P} - C^{OTM}_0 - P^{OTM}_0$, if it drops to zero at expiration.

The maximum loss is the net debit paid, $C^{ATM}_0 + P^{ATM}_0$. It occurs when the underlying price is the same at expiration as it was when you opened the trade. In this case, both Options expire worthless.

The following table shows the price details of the assets in the algorithm at Option expiration (2017-05-20):

Asset	Price ($)	Strike ($)
Call	22.30	835.00
Put	23.90	835.00
Underlying Equity at expiration	934.01	-

Therefore, the payoff is

$$ \begin{array}{rcll} C^{ATM}_T & = & (S_T - K^{C})^{+}\\ & = & (934.01-835.00)^{+}\\ & = & 98.99\\ P^{ATM}_T & = & (K^{P} - S_T)^{+}\\ & = & (835.00-934.01)^{+}\\ & = & 0\\ P_T & = & (C^{ATM}_T + P^{ATM}_T - C^{ATM}_0 - P^{ATM}_0)\times m - fee\\ & = & (98.99+0-22.3-23.9)\times100-1.00\times2\\ & = & 5277 \end{array} $$

So, the strategy gains $5,277.

The following algorithm implements a long straddle strategy: