Option Strategies

Follow these steps to implement the short strangle 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, 4, 30);
    SetCash(100000);

    var option = AddOption("GOOG");
    _symbol = option.Symbol;
    option.SetFilter(-5, 5, 0, 30);
}

def Initialize(self) -> None:
    self.SetStartDate(2017, 4, 1)
    self.SetEndDate(2017, 4, 30)
    self.SetCash(100000)
        
    option = self.AddOption("GOOG")
    self.symbol = option.Symbol
    option.SetFilter(-5, 5, 0, 30)

2. In the OnData method, select the expiration date and strike prices 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 options with the farthest expiry
    var expiry = chain.Max(contract => contract.Expiry);
    var contracts = chain.Where(contract => contract.Expiry == expiry).ToList();

    // Order the OTM calls by strike to find the nearest to ATM
    var callContracts = contracts
        .Where(contract => contract.Right == OptionRight.Call &&
            contract.Strike > chain.Underlying.Price)
        .OrderBy(contract => contract.Strike).ToArray();
    if (callContracts.Length == 0) return;

    // Order the OTM puts by strike to find the nearest to ATM
    var putContracts = contracts
        .Where(contract => contract.Right == OptionRight.Put &&
            contract.Strike < chain.Underlying.Price)
        .OrderByDescending(contract => contract.Strike).ToArray();
    if (putContracts.Length == 0) return;

    var callStrike = callContracts[0].Strike;
    var putStrike = putContracts[0].Strike;
}

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

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

    # Find options with the farthest expiry
    expiry = max([x.Expiry for x in chain])
    contracts = [contract for contract in chain if contract.Expiry == expiry]
     
    # Order the OTM calls by strike to find the nearest to ATM
    call_contracts = sorted([contract for contract in contracts
        if contract.Right == OptionRight.Call and
            contract.Strike > chain.Underlying.Price],
        key=lambda x: x.Strike)
    if not call_contracts:
        return
        
    # Order the OTM puts by strike to find the nearest to ATM
    put_contracts = sorted([contract for contract in contracts
        if contract.Right == OptionRight.Put and
           contract.Strike < chain.Underlying.Price],
        key=lambda x: x.Strike, reverse=True)
    if not put_contracts:
        return

    call_strike = call_contracts[0].Strike
    put_strike = put_contracts[0].Strike

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

var shortStrangle = OptionStrategies.ShortStrangle(_symbol, callStrike, putStrike, expiry);
Buy(shortStrangle, 1);

short_strangle = OptionStrategies.ShortStrangle(self.symbol, call_strike, put_strike, expiry)
self.Buy(short_strangle, 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

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

The following chart shows the payoff at expiration:

The maximum profit $C^{OTM}_0 + P^{OTM}_0$. It occurs when the underlying price at expiration remains within the range of the strike prices. In this case, both Options expire worthless.

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

The following table shows the price details of the assets in the algorithm at Option expiration (2017-04-22):

Asset	Price ($)	Strike ($)
Call	8.00	835.00
Put	7.40	832.50
Underlying Equity at expiration	843.19	-

Therefore, the payoff is

$$ \begin{array}{rcll} C^{OTM}_T & = & (S_T - K^{C})^{+}\\ & = & (843.19-835.00)^{+}\\ & = & 8.19\\ P^{OTM}_T & = & (K^{P} - S_T)^{+}\\ & = & (832.50-843.19)^{+}\\ & = & 0\\ P_T & = & (-C^{OTM}_T - P^{OTM}_T + C^{OTM}_0 + P^{OTM}_0)\times m - fee\\ & = & (-8.19-0+8.00+7.40)\times100-2.00\times2\\ & = & 719 \end{array} $$

So, the strategy gains $719.

The following algorithm implements a short straddle strategy: