Option Strategies

Follow these steps to implement the put calendar spread 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, 2, 1);
    SetEndDate(2017, 2, 19);
    SetCash(500000);

    var option = AddOption("GOOG", Resolution.Minute);
    _symbol = option.Symbol;
    option.SetFilter(universe => universe.IncludeWeeklys()
                                         .Strikes(-1, 1)
                                         .Expiration(TimeSpan.FromDays(0), TimeSpan.FromDays(62)));
}

def Initialize(self) -> None:
    self.SetStartDate(2017, 2, 1)
    self.SetEndDate(2017, 2, 19)
    self.SetCash(500000)

    option = self.AddOption("GOOG", Resolution.Minute)
    self.symbol = option.Symbol
    option.SetFilter(self.UniverseFunc)

def UniverseFunc(self, universe: OptionFilterUniverse) -> OptionFilterUniverse:
    return universe.Strikes(-1, 1).Expiration(timedelta(0), timedelta(62))

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

public override void OnData(Slice slice)
{
    if (Portfolio.Invested) return;

    // Get the OptionChain
    var chain = slice.OptionChains.get(_symbol, null);
    if (chain == null || chain.Count() == 0) return;

    // Get the ATM strike price
    var atmStrike = chain.OrderBy(x => Math.Abs(x.Strike - chain.Underlying.Price)).First().Strike;

    // Select the ATM put contracts
    var puts = chain.Where(x => x.Strike == atmStrike && x.Right == OptionRight.Put);
    if (puts.Count() == 0) return;

    // Select the near and far expiration dates
    var expiries = puts.Select(x => x.Expiry).OrderBy(x => x);
    var nearExpiry = expiries.First();
    var farExpiry = expiries.Last();

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

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

    # Get the ATM strike price
    atm_strike = sorted(chain, key=lambda x: abs(x.Strike - chain.Underlying.Price))[0].Strike

    # Select the ATM put contracts
    puts = [i for i in chain if i.Strike == atm_strike and i.Right == OptionRight.Put]
    if len(puts) == 0: return

    # Select the near and far expiration dates
    expiries = sorted([x.Expiry for x in puts], key = lambda x: x)
    near_expiry = expiries[0]
    far_expiry = expiries[-1]

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

var optionStrategy = OptionStrategies.PutCalendarSpread(_symbol, atmStrike, nearExpiry, farExpiry);
Buy(optionStrategy, 1);    // if long put calendar spread
Sell(optionStrategy, 1);   // if short put calendar spread

option_strategy = OptionStrategies.PutCalendarSpread(self.symbol, atm_strike, near_expiry, far_expiry)
self.Buy(option_strategy, 1)    # if long put calendar spread
self.Sell(option_strategy, 1)   # if short put calendar spread

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 and Sell methods.

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

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

The put calendar spread can be long or short.

Long Put Calendar Spread

The long put calendar spread is a limited-reward-limited-risk strategy. The payoff is taken at the shorter-term expiration. The payoff is

$$ \begin{array}{rcll} P^{\textrm{short-term}}_T & = & (K - S_T)^{+}\\ P_T & = & (P^{\textrm{long-term}}_T - P^{\textrm{short-term}}_T + P^{\textrm{short-term}}_0 - P^{\textrm{long-term}}_0)\times m - fee \end{array} $$ $$ \begin{array}{rcll} \textrm{where} & P^{\textrm{short-term}}_T & = & \textrm{Shorter term put value at time T}\\ & P^{\textrm{long-term}}_T & = & \textrm{Longer term put value at time T}\\ & S_T & = & \textrm{Underlying asset price at time T}\\ & K & = & \textrm{Strike price}\\ & P_T & = & \textrm{Payout total at time T}\\ & P^{\textrm{short-term}}_0 & = & \textrm{Shorter term put value at position opening (credit received)}\\ & P^{\textrm{long-term}}_0 & = & \textrm{Longer term put value at position opening (debit paid)}\\ & m & = & \textrm{Contract multiplier}\\ & T & = & \textrm{Time of shorter term put expiration} \end{array} $$

The following chart shows the payoff at expiration:

The maximum profit is undetermined because it depends on the underlying volatility.  It occurs when $S_T = S_0$ and the spread of the puts are at their maximum.

The maximum loss is the net debit paid, $P^{\textrm{short-term}}_0 - P^{\textrm{long-term}}_0$. It occurs when the underlying price moves very deep ITM or OTM so the values of both puts are close to zero.

If the Option is American Option, there is risk of early assignment on the sold contract. Naked long puts pose risk of losing all the debit paid if you don't close the position with short put together and the price drops below its strike.

Short Put Calendar Spread

The short put calendar spread is a limited-reward-limited-risk strategy. The payoff is taken at the shorter-term expiration. The payoff is

$$ \begin{array}{rcll} P^{\textrm{short-term}}_T & = & (K - S_T)^{+}\\ P_T & = & (P^{\textrm{short-term}}_T - P^{\textrm{long-term}}_T + P^{\textrm{long-term}}_0 - P^{\textrm{short-term}}_0)\times m - fee \end{array} $$ $$ \begin{array}{rcll} \textrm{where} & P^{\textrm{short-term}}_T & = & \textrm{Shorter term put value at time T}\\ & P^{\textrm{long-term}}_T & = & \textrm{Longer term put value at time T}\\ & S_T & = & \textrm{Underlying asset price at time T}\\ & K & = & \textrm{Strike price}\\ & P_T & = & \textrm{Payout total at time T}\\ & P^{\textrm{short-term}}_0 & = & \textrm{Shorter term put value at position opening (debit paid)}\\ & P^{\textrm{long-term}}_0 & = & \textrm{Longer term put value at position opening (credit received)}\\ & m & = & \textrm{Contract multiplier}\\ & T & = & \textrm{Time of shorter term put expiration} \end{array} $$

The following chart shows the payoff at expiration:

The maximum profit is the net credit received, $P^{\textrm{long-term}}_0 - P^{\textrm{short-term}}_0$. It occurs when the underlying price moves very deep ITM or OTM so the values of both puts are close to zero.

The maximum loss is undetermined because it depends on the underlying volatility. It occurs when $S_T = S_0$ and the spread of the 2 puts are at their maximum.

If the Option is American Option, there is risk of early assignment on the sold contract. Additionally, if you don't close the put positions together, the naked short put will have unlimited drawdown risk after the long put expires.

The following table shows the price details of the assets in the long put calendar spread algorithm:

Asset	Price ($)	Strike ($)
Shorter-term put at position opening	11.30	800.00
Longer-term put at position opening	19.30	800.00
Longer-term put at shorter-term expiration	3.50	800.00
Underlying Equity at shorter-term expiration	828.07	-

Therefore, the payoff is

$$ \begin{array}{rcll} P^{\textrm{short-term}}_T & = & (K - S_T)^{+}\\ & = & (800.00-828.07)^{+}\\ & = & 0\\ P_T & = & (P^{\textrm{long-term}}_T - P^{\textrm{short-term}}_T + P^{\textrm{short-term}}_0 - P^{\textrm{long-term}}_0)\times m - fee\\ & = & (3.50-0+11.30-19.30)\times100-1.00\times2\\ & = & -452\\ \end{array} $$

So, the strategy losses $452.

The following algorithm implements a long put calendar spread Option strategy: