Option Strategies

Follow these steps to implement the long 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", Resolution.Minute);
    _symbol = option.Symbol;
    option.SetFilter(-5, 5, TimeSpan.FromDays(0), TimeSpan.FromDays(30));
}

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

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

    // Select an expiration date
    var expiry = chain.OrderBy(contract => contract.Expiry).Last().Expiry;

    // Select the OTM call strike
    var callStrikes = chain.Where(contract => contract.Expiry == expiry 
                                              && contract.Right == OptionRight.Call 
                                              && contract.Strike > chain.Underlying.Price)
                           .Select(contract => contract.Strike);
    if (callStrikes.Count() == 0) return;
    var callStrike = callStrikes.Min();

    // Select the OTM put strike
    var putStrikes = chain.Where(contract => contract.Expiry == expiry 
                                              && contract.Right == OptionRight.Put 
                                              && contract.Strike < chain.Underlying.Price)
                          .Select(contract => contract.Strike);
    if (putStrikes.Count() == 0) return;
    var putStrike = putStrikes.Max();
}

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

    # Select an expiration date
    expiry = sorted(chain, key=lambda contract: contract.Expiry, reverse=True)[0].Expiry

    # Select the OTM call strike
    strikes = [contract.Strike for contract in chain if contract.Expiry == expiry]
    call_strikes = [contract.Strike for contract in chain 
        if contract.Expiry == expiry 
        and contract.Right == OptionRight.Call
        and contract.Strike > chain.Underlying.Price]
    if len(call_strikes) == 0: return
    call_strike = min(call_strikes)

    # Select the OTM put strike
    put_strikes = [contract.Strike for contract in chain 
        if contract.Expiry == expiry 
        and contract.Right == OptionRight.Put
        and contract.Strike < chain.Underlying.Price]
    if len(put_strikes) == 0: return
    put_strike = max(put_strikes)

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

var optionStrategy = OptionStrategies.Strangle(_symbol, callStrike, putStrike, expiry);
Buy(optionStrategy, 1);

option_strategy = OptionStrategies.Strangle(self.symbol, call_strike, put_strike, expiry)
self.Buy(option_strategy, 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 methods.

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 is unlimited if the underlying price rises to infinity at expiration.

The maximum loss is the net debit paid, $C^{OTM}_0 + P^{OTM}_0$. It occurs when the underlying price at expiration is the same as when you opened the trade. In this case, both Options expire worthless.

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

Asset	Price ($)	Strike ($)
Call	8.80	835.00
Put	9.50	832.50
Underlying Equity at expiration	843.19	-

Therefore, the payoff is

$$ \begin{array}{rcll} C^{OTM}_T & = & (S_T - K^{C})^{+}\\ & = & (843.19-835.00)^{+}\\ & = & 8.19\\ P^{OTM}_T & = & (K^{P} - S_T)^{+}\\ & = & (832.50-843.19)^{+}\\ & = & 0\\ P_T & = & (C^{OTM}_T + P^{OTM}_T - C^{OTM}_0 - P^{OTM}_0)\times m - fee\\ & = & (8.19+0-8.80-9.50)\times100-1.00\times2\\ & = & -1013 \end{array} $$

So, the strategy losses $1,013.

The following algorithm implements a long strangle Option strategy: