Using Options to Trade Volatility

I have spent quite some time trying to get a basic volatility trading algo working using options. For some reason I have hit an error that I cannot resolve. I have attached a backtest below, any help would be appreciated.

For some reason I was not able to attach a backtest, so the code for the algo is below:

from datetime import timedelta

class OptionsAlgorithm(QCAlgorithm):

def Initialize(self):
self.SetStartDate(2017, 01, 01)
self.SetEndDate(2017, 01, 8)
equity = self.AddEquity("VXX", Resolution.Minute)
self.symbol = equity.Symbol
self.last_slice = None

# warm up for 121 days

# filter the option contracts we will trade
option = self.AddOption(str(self.symbol));
option.SetFilter(-2, +20, TimeSpan.FromDays(5),TimeSpan.FromDays(9));

# run rebalance every day before market close
self.Schedule.On(self.DateRules.Every([DayOfWeek.Friday]), self.TimeRules.BeforeMarketClose(str(self.symbol), 2), Action(self.rebalance))

def OnData(self,slice):
if self.IsWarmingUp: return
# if self.Time.weekday() != 4 or self.Time.hour != 12 or self.Time.minute != 58: return

self.last_slice = slice

def rebalance(self):
self.Debug("rebalance being called")

# sell everything first

for i in self.last_slice.OptionChains:
chain = i.Value

# differentiate the call and put options
calls = [x for x in chain if x.Right == 0]
puts = [x for x in chain if x.Right == 1]

# get all OTM calls
otm_calls = [x for x in calls if x.UnderlyingLastPrice - x.Strike < 0]

# get closest ATM call
atm_call = sorted(otm_calls, key = lambda x: x.UnderlyingLastPrice - x.Strike)[0]

# get OTM call at least 10% OTM
fotm_calls = [x for x in otm_calls if float(x.UnderlyingLastPrice)*float(1.15) - float(x.Strike) < 0]
fotm_call = sorted(fotm_calls, key = lambda x: x.UnderlyingLastPrice - x.Strike)[0]

# get all OTM puts
otm_puts = [x for x in puts if x.UnderlyingLastPrice - x.Strike > 0]

# get 2nd closest ATM put
put = sorted(otm_puts, key = lambda x: x.Strike, reverse = True)[1]

# sell 80% ATM calls
atm_call_amount = float(self.Portfolio.TotalPortfolioValue) * -0.8
atm_call_contracts = atm_call_amount / (float(atm_call.Underlying.Price)*100.0)
self.MarketOrder(atm_call.Symbol, atm_call_contracts)

# buy 80% Far out of the money calls
fotm_call_amount = float(self.Portfolio.TotalPortfolioValue) * 0.8
fotm_call_contracts = fotm_call_amount / (float(fotm_call.Underlying.Price)*100.0)
self.MarketOrder(fotm_call.Symbol, fotm_call_contracts)

# buy 32% puts
put_amount = float(self.Portfolio.TotalPortfolioValue) * 0.32
put_contracts = put_amount / (float(put.Underlying.Price)*100.0)
self.MarketOrder(put.Symbol, put_contracts)
Update Backtest

Hi mohammad,  there might be no contracts satisfying your filtering conditions at some time as the SetFilter function is strict with the maturity and the strike. You can add the weekly options contracts in SetFilter method to include more contracts


def UniverseFunc(self, universe):
return universe.IncludeWeeklys().Strikes(-2, 20).Expiration(TimeSpan.FromDays(5),TimeSpan.FromDays(9))

Secondly, 'OptionContract' object has no attribute 'Underlying' , it is an attribute of OptionChain. For 'OptionContract' you can use 'UnderlyingLastPrice' to get the underlying price.


Thanks Jing, I really appreciate your help (as you can tell my code was already based on your option tutorial :)

I was not aware that the weeklys were not included by default, but now I know.

Thanks again!


You could also try the OptionChainProvider() which includes the weekly contract data, the backtest is much faster using OptionChainProvider() than the SetFilter()

Thanks Jing for the helpful example! Could you also provide a Research jupyter notebook example of using OptionChainProvider() to get weekly options contracts?



Update Backtest


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