Question about Long Strangle Tutorial

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https://www.quantconnect.com/tutorials/applied-options/long-strangle

Sorry if this has been answered elsewhere, but I have been looking through the long strangle tutorial and maybe it's my knowledge of options that's the problem here, but I was under the impression that if you buy and OTM put and it expires in the money, then you essentially are given the difference between the strike and the underlying at expiration. In the backtest, that would have been 03/20/2020. It says also that 4 orders were placed:

 

+2020-02-03 09:31:00     GOOG 200320C01500000    Buy      Market    Fill: $45.00 USD 1 Filled 

 

+2020-02-03 09:31:00     GOOG 200320P01435000    Buy      Market    Fill: $45.10 USD 1Filled 

 

+2020-03-20 16:00:00     GOOG 200320P01435000    Sell       Option Exercise  Fill: $1,435.00 USD

-1FilledOption Expired - Automatic Exercise - Option Exercise

 

+2020-03-20 16:00:00GOOG 200320C01500000         Sell       Option Exercise Fill: $1,500.00 USD

-1FilledOption Expired - OTM

 

Since no orders were placed after 03/20/2020, shouldn't the equity curve be flat afterwards if no trades are made? I figure if I buy an otm call and it expires ITM, I essentially get to buy the option on sale. But if it's a put, is it purchased back after I sell it at a premium? If I only want to trade options and never really touch any stocks, is that doable? I am new here so sorry if I made simple mistakes.

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Hi Coastal,

If we buy an a call at it expires ITM, we get to buy the underlying at the strike price. If it's a put, we get to short the underlying at the strike price.

The reason the equity curve continues to vary after 3/20/2020 is because the put expired ITM, causing the algorithm to have a -100 short position in GOOG. See the attached backtest plots for reference.

Best,
Derek Melchin

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The material on this website is provided for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation or endorsement for any security or strategy, nor does it constitute an offer to provide investment advisory services by QuantConnect. In addition, the material offers no opinion with respect to the suitability of any security or specific investment. QuantConnect makes no guarantees as to the accuracy or completeness of the views expressed in the website. The views are subject to change, and may have become unreliable for various reasons, including changes in market conditions or economic circumstances. All investments involve risk, including loss of principal. You should consult with an investment professional before making any investment decisions.


Ahh thank you so much. I had a feeling it was something like that :)

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The material on this website is provided for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation or endorsement for any security or strategy, nor does it constitute an offer to provide investment advisory services by QuantConnect. In addition, the material offers no opinion with respect to the suitability of any security or specific investment. QuantConnect makes no guarantees as to the accuracy or completeness of the views expressed in the website. The views are subject to change, and may have become unreliable for various reasons, including changes in market conditions or economic circumstances. All investments involve risk, including loss of principal. You should consult with an investment professional before making any investment decisions.


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