Option Strategies
Bull Call Spread
Introduction
Bull call spread, also known as long call spread, consists of buying an ITM call and selling an OTM call. Both calls have the same underlying Equity and the same expiration date. The OTM call serves as a hedge for the ITM call. The bull call spread profits from a rise in underlying asset price.
Implementation
Follow these steps to implement the bull call spread strategy:
- In the
initialize
method, set the start date, end date, cash, and Option universe. - In the
on_data
method, select the expiration and strikes of the contracts in the strategy legs. - In the
on_data
method, select the contracts and place the orders.
def initialize(self) -> None: self.set_start_date(2017, 2, 1) self.set_end_date(2017, 3, 5) self.set_cash(500000) 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_spread(30, 5))
The call_spread
filter narrows the universe down to just the two contracts you need to form a bull call spread.
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 == 0: return # Select the ITM and OTM contract strike prices from the remaining contracts strikes = [x.strike for x in calls] otm_strike = max(strikes) itm_strike = min(strikes)
Approach A: Call the OptionStrategies.bull_call_spread
method with the details of each leg and then pass the result to the buy
method.
option_strategy = OptionStrategies.bull_call_spread(self._symbol, itm_strike, otm_strike, expiry) self.buy(option_strategy, 1)
Approach B: Create a list of Leg
objects and then call the combo_market_order, combo_limit_order, or combo_leg_limit_order method.
itm_call = [x for x in calls if x.strike == itm_strike][0] otm_call = [x for x in calls if x.strike == otm_strike][0] legs = [ Leg.create(itm_call.symbol, 1), Leg.create(otm_call.symbol, -1) ] self.combo_market_order(legs, 1)
Strategy Payoff
The bull call spread is a limited-reward-limited-risk strategy. The payoff is
COTMT=(ST−KOTM)+CITMT=(ST−KITM)+PT=(CITMT−COTMT+COTM0−CITM0)×m−fee whereCOTMT=OTM call value at time TCITMT=ITM call value at time TST=Underlying asset price at time TKOTM=OTM call strike priceKITM=ITM call strike pricePT=Payout total at time TCITM0=ITM call value at position opening (debit paid)COTM0=OTM call value at position opening (credit received)m=Contract multiplierT=Time of expirationThe following chart shows the payoff at expiration:

The maximum profit is KOTM−KITM+COTM0−CITM0. If the underlying price increases to exceed both strikes at expiration, both calls are worth (ST−K) at expiration.
The maximum loss is the net debit you paid to open the position, COTM0−CITM0.
If the Option is American Option, there is a risk of early assignment on the contract you sell.
Example
The following table shows the price details of the assets in the algorithm:
Asset | Price ($) | Strike ($) |
---|---|---|
OTM call | 3.00 | 835.00 |
ITM call | 41.00 | 767.50 |
Underlying Equity at expiration | 829.08 | - |
Therefore, the payoff is
COTMT=(ST−KOTM)+=(829.08−835.00)+=0CITMT=(ST−KITM)+=(829.08−767.50)+=61.58PT=(CITMT−COTMT+COTM0−CITM0)×m−fee=(61.58−0+3.00−41.00)×100−1.00×2=2356So, the strategy profits $2,356.
The following algorithm implements a bull call spread strategy:
class BullCallSpreadStrategy(QCAlgorithm): def initialize(self) -> None: self.set_start_date(2017, 2, 1) self.set_end_date(2017, 3, 5) self.set_cash(500000) option = self.add_option("GOOG", Resolution.MINUTE) self.symbol = option.symbol option.set_filter(self.universe_func) def universe_func(self, universe: OptionFilterUniverse) -> OptionFilterUniverse: return universe.include_weeklys().call_spread(30, 5) 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 # Get the furthest expiration date of the contracts expiry = sorted(chain, key = lambda x: x.expiry, reverse=True)[0].expiry # Select the call Option contracts with the furthest expiry calls = [i for i in chain if i.expiry == expiry and i.right == OptionRight.CALL] if len(calls) == 0: return # Select the ITM and OTM contract strike prices from the remaining contracts call_strikes = sorted([x.strike for x in calls]) itm_strike = call_strikes[0] otm_strike = call_strikes[-1] option_strategy = OptionStrategies.bull_call_spread(self.symbol, itm_strike, otm_strike, expiry) self.buy(option_strategy, 1)
Other Examples
For more examples, see the following algorithms: