Option Strategies

Follow these steps to implement the conversion strategy:

1. In the Initializeinitialize method, set the start date, set the end date, subscribe to the underlying Equity, and create an Option universe.

private Symbol _symbol;

public override void Initialize()
{
    SetStartDate(2017, 4, 1);
    SetEndDate(2017, 4, 30);
    SetCash(100000);

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

def initialize(self) -> None:
    self.set_start_date(2017, 4, 1)
    self.set_end_date(2017, 4, 30)
    self.set_cash(100000)

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

The Conversionconversion filter narrows the universe down to just the two contracts you need to form a conversion.

2. In the OnDataon_data method, select the strike and expiry of the contracts in the strategy legs.

public override void OnData(Slice slice)
{
    if (Portfolio.Invested) return;

    // Get the OptionChain
    if (!slice.OptionChains.TryGetValue(_symbol, out var chain)) return;

    // Select an expiry date and ATM strike price
    var expiry = chain.Max(x => x.Expiry);
    var strike = chain.OrderBy(x => Math.Abs(x.Strike - chain.Underlying.Price)).First().Strike;

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 an expiry date and ATM strike price
    expiry = max([x.expiry for x in chain])
    strike = sorted(chain, key = lambda x: abs(x.strike - chain.underlying.price))[0].strike

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

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

var conversion = OptionStrategies.Conversion(_symbol, strike, expiry);
Buy(conversion, 1);

conversion = OptionStrategies.conversion(self._symbol, strike, expiry)
self.buy(conversion, 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.

// Select the call and put contracts
var call = chain.Single(x => x.Expiry == expiry && x.Strike == strike && x.Right == OptionRight.Call);
var put = chain.Single(x => x.Expiry == expiry && x.Strike == strike && x.Right == OptionRight.Put);

var legs = new List<Leg>()
    {
        Leg.Create(call.Symbol, -1),
        Leg.Create(put.Symbol, 1),
        Leg.Create(chain.Underlying.Symbol, chain.Underlying.SymbolProperties.ContractMultiplier)
    };
ComboMarketOrder(legs, 1);

# Select the call and put contracts
call = [x for x in chain if x.right == OptionRight.CALL and x.expiry == expiry and x.strike == strike][0]
put = [x for x in chain if x.right == OptionRight.PUT and x.expiry == expiry and x.strike == strike][0]

legs = [
    Leg.create(call.symbol, -1),
    Leg.create(put.symbol, 1),
    Leg.create(chain.underlying.symbol, chain.underlying.symbol_properties.contract_multiplier)
]
self.combo_market_order(legs, 1)

This is a fixed payoff, delta-neutral strategy. The payoff is

$$ \begin{array}{rcll} C_T & = & (S_T - K)^{+}\\ P_T & = & (K - S_T)^{+}\\ Payoff_T & = & (S_T - S_0 - C_T + P_T + C_0 - P_0)\times m - fee\\ & = & (K - S_0 + C_0 - P_0)\times m - fee \end{array} $$ $$ \begin{array}{rcll} \textrm{where} & C_T & = & \textrm{Call value at time T}\\ & P_T & = & \textrm{Put value at time T}\\ & S_T & = & \textrm{Underlying asset price at time T}\\ & K & = & \textrm{Strike price}\\ & Payoff_T & = & \textrm{Payout total at time T}\\ & S_0 & = & \textrm{Underlying asset price when the trade opened}\\ & C_0 & = & \textrm{Call price when the trade opened (credit received)}\\ & P_0 & = & \textrm{Put price when the trade opened (debit paid)}\\ & m & = & \textrm{Contract multiplier}\\ & T & = & \textrm{Time of expiration} \end{array} $$

The following chart shows the payoff at expiration:

The payoff is only dependent on the strike price and the initial asset 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 ($)	Strike ($)
Call	8.10	832.50
Put	9.50	832.50
Underlying Equity at position opens	833.17	-

Therefore, the payoff is

$$ \begin{array}{rcll} Payoff_T & = & (K - S_0 + C_0 - P_0)\times m - fee\\ & = & (832.50 - 833.17 + 8.10 - 9.50)\times100-1.00\times3\\ & = & -210.00\\ \end{array} $$

So, the strategy loses $210.

The following algorithm implements a conversion Option strategy: