Option Strategies

Follow these steps to implement the naked call strategy:

1. In the Initializeinitialize method, set the start date, end date, starting cash, and Options universe.

private Symbol _call, _symbol;

public override void Initialize()
{
    SetStartDate(2014, 1, 1);
    SetEndDate(2014, 3, 1);
    SetCash(100000);

    UniverseSettings.Asynchronous = true;
    var option = AddOption("IBM");
    _symbol = option.Symbol;
    option.SetFilter(universe => universe.IncludeWeeklys().NakedCall(30, 0));
}

def initialize(self) -> None:
    self.set_start_date(2014, 1, 1)
    self.set_end_date(2014, 3, 1)
    self.set_cash(100000)

    self.universe_settings.asynchronous = True
    option = self.add_option("IBM")
    self._symbol = option.symbol
    option.set_filter(lambda universe: universe.include_weeklys().naked_call(30, 0))

The NakedCallnaked_call filter narrows the universe down to just the one contract you need to form a naked call.

2. In the OnDataon_data method, select the Option contract.

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

    // Find ATM call with the farthest expiry
    var expiry = chain.Max(x => x.Expiry);
    var atmCall = chain
        .Where(x => x.Right == OptionRight.Call && x.Expiry == expiry)
        .OrderBy(x => Math.Abs(x.Strike - chain.Underlying.Price))
        .FirstOrDefault();

def on_data(self, slice: Slice) -> None:
    if self.portfolio.invested:
        return

    chain = slice.option_chains.get(self._symbol)
    if not chain:
        return

    # Find ATM call with the farthest expiry
    expiry = max([x.expiry for x in chain])
    call_contracts = sorted([x for x in chain
        if x.right == OptionRight.CALL and x.expiry == expiry],
        key=lambda x: abs(chain.underlying.price - x.strike))

    if not call_contracts:
        return

    atm_call = call_contracts[0]

3. In the OnDataon_data method, place the orders.

Approach A: Call the OptionStrategies.NakedCallOptionStrategies.naked_call method with the details of each leg and then pass the result to the Buybuy method.

var nakedCall = OptionStrategies.NakedCall(_symbol, atmCall.Strike, expiry);
Buy(nakedCall, 1);

naked_call = OptionStrategies.naked_call(self._symbol, atm_call.strike, expiry)
self.buy(naked_call, 1)

Approach B: Call the Market Ordermarket_order or Limit Orderlimit_order method.

MarketOrder(atmCall.Symbol, -1);

self.market_order(atm_call.symbol, -1)

The payoff of the strategy is

The following chart shows the payoff at expiration:

The maximum profit is $C^{K}_0$, which occurs when the underlying price is at or below the strike price of the call at expiration.

The maximum loss is unlimited because there is no limit to how high the underlying asset's price can rise.

If the Option is American Option, there is a risk of early assignment on the contract you sell.

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

Therefore, the payoff is

So, the strategy loses $167.

The following algorithm implements a naked call Option strategy:

public class NakedCallAlgorithm : QCAlgorithm
{
    private Symbol _call, _symbol;
    
    public override void Initialize()
    {
        SetStartDate(2014, 1, 1);
        SetEndDate(2014, 3, 1);
        SetCash(100000);

        var option = AddOption("IBM");
        _symbol = option.Symbol;
        option.SetFilter(universe => universe.IncludeWeeklys().NakedCall(30, 0));

        // use the underlying equity as the benchmark
        SetBenchmark(_symbol.Underlying);
    }

    public override void OnData(Slice slice)
    {
        if (_call != null && Portfolio[_call].Invested) return;

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

        // Find ATM call with the farthest expiry
        var expiry = chain.Max(x => x.Expiry);
        var atmCall = chain
            .Where(x=> x.Right == OptionRight.Call && x.Expiry == expiry)
            .OrderBy(x => Math.Abs(x.Strike - chain.Underlying.Price))
            .FirstOrDefault();

        if (atmCall == null) return;

        var nakedCall = OptionStrategies.NakedCall(_symbol, atmCall.Strike, expiry);
        Buy(nakedCall, 1);

        _call = atmCall.Symbol;
    }
}

class NakedCallAlgorithm(QCAlgorithm):
    def initialize(self) -> None:
        self.set_start_date(2014, 1, 1)
        self.set_end_date(2014, 3, 1)
        self.set_cash(100000)

        option = self.add_option("IBM")
        self.symbol = option.symbol
        option.set_filter(lambda universe: universe.include_weeklys().naked_call(30, 0))

        self.call = None

        # use the underlying equity as the benchmark
        self.set_benchmark(self.symbol.underlying)

    def on_data(self, slice: Slice) -> None:
        if self.call and self.portfolio[self.call].invested:
            return

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

        # Find ATM call with the farthest expiry
        expiry = max([x.expiry for x in chain])
        call_contracts = sorted([x for x in chain
            if x.right == OptionRight.CALL and x.expiry == expiry],
            key=lambda x: abs(chain.underlying.price - x.strike))

        if not call_contracts:
            return

        atm_call = call_contracts[0]

        naked_call = OptionStrategies.naked_call(self.symbol, atm_call.strike, expiry)
        self.buy(naked_call, 1)

        self.call = atm_call.symbol