Option Strategies

Follow these steps to implement the bull 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.BullCallLadderOptionStrategies.bull_call_ladder method with the details of each leg and then pass the result to the Buybuy method.

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

option_strategy = OptionStrategies.bull_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 bull call spread is an limited-profit strategy. The payoff is

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

The following chart shows the payoff at expiration:

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

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

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	17.10	822.50
Middle-strike call	12.00	825.00
Higher-strike call	10.90	827.50
Underlying Equity at expiration	843.25	-

Therefore, the payoff is

$$ \begin{array}{rcll} C^{low}_T & = & (S_T - K^{low})^{+}\\ & = & (843.25-822.50)^{+}\\ & = & 20.75\\ C^{mid}_T & = & (S_T - K^{mid})^{+}\\ & = & (843.25-825.00)^{+}\\ & = & 18.25\\ C^{high}_T & = & (S_T - K^{high})^{+}\\ & = & (843.25-827.50)^{+}\\ & = & 15.75\\ Payoff_T & = & (C^{low}_T - C^{low}_0 + C^{mid}_0 - C^{mid}_T + C^{high}_0 - C^{high}_T)\times m - fee\\ & = & (20.75 - 17.10 + 12.00 - 18.25 + 10.90 - 15.75)\times100-1.00\times3\\ & = & -748\\ \end{array} $$

So, the strategy loses $748.

The following algorithm implements a bull call ladder Option strategy: