Option Strategies

Follow these steps to implement the long iron condor 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, 2, 1);
    SetEndDate(2017, 3, 1);
    SetCash(500000);

    UniverseSettings.Asynchronous = true;
    var option = AddOption("GOOG");
    _symbol = option.Symbol;
    option.SetFilter(universe => universe.IncludeWeeklys().IronCondor(30, 5, 10));
}

def initialize(self) -> None:
    self.set_start_date(2017, 2, 1)
    self.set_end_date(2017, 3, 1)
    self.set_cash(500000)

    self.universe_settings.asynchronous = True
    option = self.add_option("GOOG")
    self._symbol = option.symbol
    option.set_filter(lambda universe: universe.include_weeklys().iron_condor(30, 5, 10))

The IronCondoriron_condor filter narrows the universe down to just the four contracts you need to form a long iron condor.

2. In the OnDataon_data method, select the contracts in the strategy legs.

public override void OnData(Slice slice)
{
    if (Portfolio[_symbol.Underlying].Invested)
    {
        Liquidate();
    }

    if (Portfolio.Invested || !IsMarketOpen(_symbol) ||
        !slice.OptionChains.TryGetValue(_symbol, out var chain))
    {
        return;
    }

    // Find put and call contracts with the farthest expiry
    var expiry = chain.Max(x => x.Expiry);
    var contracts = chain.Where(x => x.Expiry == expiry).OrderBy(x => x.Strike);

    var putContracts = contracts.Where(x => x.Right == OptionRight.Put).ToArray();
    var callContracts = contracts.Where(x => x.Right == OptionRight.Call).ToArray();

    if (putContracts.Length < 2 || callContracts.Length < 2) return;

    // Select the strategy legs
    var nearCall = callContracts[0];
    var farCall = callContracts[1];
    var nearPut = putContracts[1];
    var farPut = putContracts.Single(x => x.Strike == nearPut.Strike - farCall.Strike + nearCall.Strike);

def on_data(self, slice: Slice) -> None:
    if self.portfolio[self._symbol.underlying].invested:
        self.liquidate()

    if self.portfolio.invested or not self.is_market_open(self._symbol):
        return

    chain = slice.option_chains.get(self._symbol)
    if not chain:
        return

    # Find put and call contracts with the farthest expiry       
    expiry = max([x.expiry for x in chain])
    chain = sorted([x for x in chain if x.expiry == expiry], key = lambda x: x.strike)

    put_contracts = [x for x in chain if x.right == OptionRight.PUT]
    call_contracts = [x for x in chain if x.right == OptionRight.CALL]

    if len(call_contracts) < 2 or len(put_contracts) < 2:
        return

    # Select the strategy legs
    near_call = call_contracts[0]
    far_call = call_contracts[1]
    near_put = put_contracts[1]
    far_put = [x for x in put_contracts if x.Strike == near_put.strike - far_call.strike + near_call.strike][0]

3. In the OnDataon_data method, place the orders.

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

var ironCondor = OptionStrategies.IronCondor(
    _symbol, 
    farPut.Strike,
    nearPut.Strike,
    nearCall.Strike,
    farCall.Strike,
    expiry);

Buy(ironCondor, 2);

iron_condor = OptionStrategies.iron_condor(
    self._symbol, 
    far_put.strike,
    near_put.strike,
    near_call.strike,
    far_call.strike,
    expiry)

self.buy(iron_condor, 2)

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 legs = new List<Leg>()
    {
        Leg.Create(farPut.Symbol, 1),
        Leg.Create(nearPut.Symbol, -1),
        Leg.Create(farCall.Symbol, 1),
        Leg.Create(nearCall.Symbol, -1)
    };
ComboMarketOrder(legs, 1);

legs = [
    Leg.create(far_put.symbol, 1),
    Leg.create(near_put.symbol, -1),
    Leg.create(far_call.symbol, 1),
    Leg.create(near_call.symbol, -1)
]
self.combo_market_order(legs, 1)

This is a limited-reward-limited-risk strategy. The payoff is

$$ \begin{array}{rcll} C^{far}_T & = & (S_T - K^C_{far})^{+}\\ C^{near}_T & = & (S_T - K^C_{near})^{+}\\ P^{far}_T & = & (K^P_{far} - S_T)^{+}\\ P^{near}_T & = & (K^P_{near} - S_T)^{+}\\ P_T & = & (C^{far}_T + P^{far}_T - C^{near}_T - P^{near}_T - C^{far}_0 - P^{far}_0 + C^{near}_0 + P^{near}_0)\times m - fee \end{array} $$ $$ \begin{array}{rcll} \textrm{where} & C^{far}_T & = & \textrm{Far OTM call value at time T}\\ & C^{near}_T & = & \textrm{Near OTM call value at time T}\\ & P^{far}_T & = & \textrm{Far OTM put value at time T}\\ & P^{near}_T & = & \textrm{Near ATM put value at time T}\\ & S_T & = & \textrm{Underlying asset price at time T}\\ & K^C_{far} & = & \textrm{Far OTM call strike price}\\ & K^C_{near} & = & \textrm{Near OTM call strike price}\\ & K^P_{far} & = & \textrm{Far OTM put strike price}\\ & K^P_{near} & = & \textrm{Near OTM put strike price}\\ & P_T & = & \textrm{Payout total at time T}\\ & C^{far}_0 & = & \textrm{Far OTM call value at position opening (credit received)}\\ & C^{near}_0 & = & \textrm{Near OTM call value at position opening (debit paid)}\\ & P^{far}_0 & = & \textrm{Far OTM put value at position opening (credit received)}\\ & P^{near}_0 & = & \textrm{Near OTM put value at position opening (debit paid)}\\ & m & = & \textrm{Contract multiplier}\\ & T & = & \textrm{Time of expiration} \end{array} $$

The following chart shows the payoff at expiration:

The maximum profit is the net credit received after commission when opening the trade, where $K^P_{OTM} < S_T < K^C_{OTM}$.

The maximum loss is $K^C_{far} - K^C_{near} + C^{near}_0 + P^{near}_0 - C^{far}_0 - P^{far}_0$, where $K^P_{OTM} > S_T$ or $S_T > K^C_{OTM}$.

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

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

Asset	Price ($)	Strike ($)
Far-OTM call	1.85	857.50
Far-OTM put	3.80	815.00
Near-OTM call	1.65	852.50
Near-OTM put	3.50	820.00
Underlying Equity at expiration	843.25	-

Therefore, the payoff is

$$ \begin{array}{rcll} C^{far}_T & = & (S_T - K^C_{far})^{+}\\ & = & (843.25-857.50)^{+}\\ & = & 0\\ C^{near}_T & = & (S_T - K^C_{near})^{+}\\ & = & (843.25-852.50)^{+}\\ & = & 0\\ P^{far}_T & = & (K^P_{far} - S_T)^{+}\\ & = & (815.00-843.25)^{+}\\ & = & 0\\ P^{near}_T & = & (K^P_{near} - S_T)^{+}\\ & = & (820.00-843.25)^{+}\\ & = & 0\\ P_T & = & (C^{near}_T + P^{near}_T - C^{far}_T - P^{far}_T - C^{near}_0 - P^{near}_0 + C^{far}_0 + P^{far}_0)\times m - fee\\ & = & (0+0-0-0+1.65+3.50-1.85-3.80)\times100-1\times4\\ & = & -54 \end{array} $$

So, the strategy loses $54.

The following algorithm implements a long iron condor Option strategy: