Option Strategies

Follow these steps to implement the bear call ladder strategy:

1. In the Initializeinitialize 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, 22);
    SetCash(1000000);

    UniverseSettings.Asynchronous = true;
    var option = AddOption("GOOG", Resolution.Minute);
    _symbol = option.Symbol;
    option.SetFilter(universe => universe.IncludeWeeklys().CallLadder(30, 5, 0, -5));
}

def initialize(self) -> None:
    self.set_start_date(2017, 4, 1)
    self.set_end_date(2017, 4, 22)
    self.set_cash(1000000)

    self.universe_settings.asynchronous = True
    option = self.add_option("GOOG", Resolution.MINUTE)
    self._symbol = option.symbol
    option.set_filter(lambda universe: universe.include_weeklys().call_ladder(30, 5, 0, -5))

2. In the OnDataon_data method, select the expiration and strikes of the contracts in the strategy legs.

public override void OnData(Slice slice)
{
    if (Portfolio.Invested ||
        !slice.OptionChains.TryGetValue(_symbol, out var chain))
    {
        return;
    }

    // Select the call Option contracts with the furthest expiry
    var expiry = chain.Max(x => x.Expiry);    
    var calls = chain.Where(x => x.Expiry == expiry && x.Right == OptionRight.Call);
    if (calls.Count() == 0) return;

    // Select the strike prices from the remaining contracts
    var strikes = calls.Select(x => x.Strike).Distinct().OrderBy(x => x).ToList();
    if (strikes.Count < 3)
    {
        return;
    }
    
    var lowStrike = strikes[0];
    var middleStrike = strikes[1];
    var highStrike = strikes[2];

def on_data(self, slice: Slice) -> None:
    if self.portfolio.invested:
        return

    # Get the OptionChain
    chain = slice.option_chains.get(self._symbol, None)
    if not chain:
        return
    
    # Select the call Option contracts with the furthest expiry
    expiry = max([x.expiry for x in chain])
    calls = [i for i in chain if i.expiry == expiry and i.right == OptionRight.CALL]
    if not calls:
        return

    # Select the strike prices from the remaining contracts
    strikes = sorted(set(x.strike for x in calls))
    if len(strikes) < 3:
        return
    
    low_strike = strikes[0]
    middle_strike = strikes[1]
    high_strike = strikes[2]

3. In the OnDataon_data method, select the contracts and place the orders.

Approach A: Call the OptionStrategies.BearCallLadderOptionStrategies.bear_call_ladder method with the details of each leg and then pass the result to the Buybuy method.

var optionStrategy = OptionStrategies.BearCallLadder(_symbol, lowStrike, middleStrike, highStrike, expiry);
Buy(optionStrategy, 1);

option_strategy = OptionStrategies.bear_call_ladder(self._symbol, low_strike, middle_strike, high_strike, expiry)
self.buy(option_strategy, 1)

Approach B: Create a list of Leg objects and then call the Combo Market Ordercombo_market_order, Combo Limit Ordercombo_limit_order, or Combo Leg Limit Ordercombo_leg_limit_order method.

var lowStrikeCall = calls.Single(x => x.Strike == lowStrike);
var middleStrikeCall = calls.Single(x => x.Strike == middleStrike);
var highStrikeCall = calls.Single(x => x.Strike == highStrike);

var legs = new List<Leg>()
{
    Leg.Create(lowStrikeCall.Symbol, -1),
    Leg.Create(middleStrikeCall.Symbol, 1),
    Leg.Create(highStrikeCall.Symbol, 1)
};
ComboMarketOrder(legs, 1, true);

low_strike_call = next(filter(lambda x: x.strike == low_strike, calls))
middle_strike_call = next(filter(lambda x: x.strike == middle_strike, calls))
high_strike_call = next(filter(lambda x: x.strike == high_strike, calls))

legs = [
    Leg.create(low_strike_call.symbol, -1),
    Leg.create(middle_strike_call.symbol, 1),
    Leg.create(high_strike_call.symbol, 1)
]
self.combo_market_order(legs, 1)

The bear call ladding is an unlimited-profit-limited-risk strategy. The payoff is

$$ \begin{array}{rcll} C^{low}_T & = & (S_T - K^{low})^{+}\\ C^{mid}_T & = & (S_T - K^{mid})^{+}\\ C^{high}_T & = & (S_T - K^{high})^{+}\\ Payoff_T & = & (C^{low}_0 - C^{low}_T + C^{mid}_T - C^{mid}_0 + C^{high}_T - C^{high}_0)\times m - fee\\ \end{array} $$ $$ \begin{array}{rcll} \textrm{where} & C^{low}_T & = & \textrm{Lower-strike call value at time T}\\ & C^{mid}_T & = & \textrm{Middle-strike call value at time T}\\ & C^{high}_T & = & \textrm{Higher-strike call value at time T}\\ & S_T & = & \textrm{Underlying asset price at time T}\\ & K^{low} & = & \textrm{Lower-strike call strike price}\\ & K^{mid} & = & \textrm{Middle-strike call strike price}\\ & K^{high} & = & \textrm{Higher-strike call strike price}\\ & C^{low}_0 & = & \textrm{Lower-strike call value at position opening (credit received)}\\ & C^{mid}_0 & = & \textrm{Middle-strikeTM call value at position opening (debit paid)}\\ & C^{high}_0 & = & \textrm{Higher-strike call value at position opening (debit paid)}\\ & m & = & \textrm{Contract multiplier}\\ & T & = & \textrm{Time of expiration} \end{array} $$

The following chart shows the payoff at expiration:

The maximum profit is unlimited, which occurs when the underlying price increases indefinitely.

The maximum loss is $K^{low} - K^{mid} + C^{low}_0 - C^{mid}_0 - C^{high}_0$, which occurs when the underlying price is between the two higher strike prices.

If the Option is American Option, there is a risk of early assignment on the contract you sell.

The following table shows the price details of the assets in the algorithm:

Asset	Price ($)	Strike ($)
Lower-Strike call	13.80	822.50
Middle-strike call	15.10	825.00
Higher-strike call	13.10	827.50
Underlying Equity at expiration	843.25	-

Therefore, the payoff is

$$ \begin{array}{rcll} C^{low}_T & = & (S_T - K^{low})^{+}\\ & = & (843.25-822.50)^{+}\\ & = & 20.75\\ C^{mid}_T & = & (S_T - K^{mid})^{+}\\ & = & (843.25-825.00)^{+}\\ & = & 18.25\\ C^{high}_T & = & (S_T - K^{high})^{+}\\ & = & (843.25-827.50)^{+}\\ & = & 15.75\\ Payoff_T & = & (C^{low}_0 - C^{low}_T + C^{mid}_T - C^{mid}_0 + C^{high}_T - C^{high}_0)\times m - fee\\ & = & (13.80 - 20.75 + 18.25 - 15.10 + 15.75 - 13.10)\times100-1.00\times3\\ & = & -118\\ \end{array} $$

So, the strategy loses $118.

The following algorithm implements a bear call ladder Option strategy: