Option Strategies

Follow these steps to implement the protective call strategy:

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

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(-3, 3, 0, 31);
}

def Initialize(self) -> None:
    self.SetStartDate(2014, 1, 1)
    self.SetEndDate(2014, 3, 1)
    self.SetCash(100000)
    
    option = self.AddOption("IBM")
    self.symbol = option.Symbol
    self.call = None

    option.SetFilter(-3, 3, 0, 31)

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

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();

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

    chain = slice.OptionChains.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 OnData method, call the OptionStrategies.ProtectiveCall method and then submit the order.

var protectiveCall = OptionStrategies.ProtectiveCall(_symbol, atmCall.Strike, expiry);
Buy(protectiveCall, 1);

_call = atmCall.Symbol;

protective_call = OptionStrategies.ProtectiveCall(self.symbol, atm_call.Strike, expiry)
self.Buy(protective_call, 1)

self.call = atm_call.Symbol

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

$$ \begin{array}{rcll} C^{K}_T & = & (S_T - K)^{+}\\ P_T & = & (S_0 - S_T + C^{K}_T - C^{K}_0)\times m - fee \end{array} $$ $$ \begin{array}{rcll} \textrm{where} & C^{K}_T & = & \textrm{Call value at time T}\\ & S_T & = & \textrm{Underlying asset price at time T}\\ & K & = & \textrm{Call strike price}\\ & P_T & = & \textrm{Payout total at time T}\\ & S_0 & = & \textrm{Underlying asset price when the trade opened}\\ & C^{K}_0 & = & \textrm{Call price when the trade opened (credit received)}\\ & m & = & \textrm{Contract multiplier}\\ & T & = & \textrm{Time of expiration} \end{array} $$

The following chart shows the payoff at expiration:

The maximum profit is $S_0 - C^{K}_0$, which occurs when the underlying price is $0$.

The maximum loss is $S_0 - K - C^{K}_0$, which occurs when the underlying price is above the strike price.

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

Asset	Price ($)	Strike ($)
Call	3.50	185.00
Underlying Equity at start of the trade	186.94	-
Underlying Equity at expiration	190.01	-

Therefore, the payoff is

$$ \begin{array}{rcll} C^{K}_T & = & (S_T - K)^{+}\\ & = & (190.01 - 185)^{+}\\ & = & 5.01\\ P_T & = & (S_0 - S_T + C^{K}_T - C^{K}_0)\times m - fee\\ & = & (186.94 - 190.01 + 5.01 - 3.50)\times m - fee\\ & = & -1.56 \times 100 - 2\\ & = & -158 \end{array} $$

So, the strategy losses $158.

The following algorithm implements a protective call Option strategy: