Option Strategies

Follow these steps to implement the protective call strategy:

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

private Symbol _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 protective 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.ProtectiveCallOptionStrategies.protective_call method with the details of each leg and then pass the result to the Buybuy method.

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

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

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(atmCall.Symbol, 1),
        Leg.Create(chain.Underlying.Symbol, -chain.Underlying.SymbolProperties.ContractMultiplier)
    };
ComboMarketOrder(legs, 1);

legs = [
    Leg.create(atm_call.symbol, 1),
    Leg.create(chain.underlying.symbol, -chain.underlying.symbol_properties.contract_multiplier)
]
self.combo_market_order(legs, 1)

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 loses $158.

The following algorithm implements a protective call Option strategy: