Option Strategies
Long Straddle
Introduction
Long Straddle is an Options trading strategy that consists of buying an ATM call and an ATM put, where both contracts have the same underlying asset, strike price, and expiration date. This strategy aims to profit from volatile movements in the underlying stock, either positive or negative.
Implementation
Follow these steps to implement the long straddle strategy:
- In the
initialize
method, set the start date, end date, cash, and Option universe. - In the
on_data
method, select the expiration date and strike price 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, 4, 1) self.set_end_date(2017, 6, 30) self.set_cash(100000) self.universe_settings.asynchronous = True option = self.add_option("GOOG") self._symbol = option.symbol option.set_filter(lambda universe: universe.include_weeklys().straddle(30))
The straddle
filter narrows the universe down to just the two contracts you need to form a long straddle.
def on_data(self, slice: Slice) -> None: if self.portfolio.invested: return chain = slice.option_chains.get(self._symbol, None) if not chain: return # Find ATM options with the nearest expiry expiry = min([x.expiry for x in chain]) strike = sorted(chain, key=lambda x: abs(x.strike - chain.underlying.price))[0].strike
Approach A: Call the OptionStrategies.straddle
method with the details of each leg and then pass the result to the buy
method.
long_straddle = OptionStrategies.straddle(self._symbol, strike, expiry) self.buy(long_straddle, 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.
contracts = [x for x in chain if x.expiry == expiry and x.strike == strike] if len(contracts) < 2: return atm_call = [x for x in contracts if x.right == OptionRight.CALL][0] atm_put = [x for x in contracts if x.right == OptionRight.PUT][0] legs = [ Leg.create(atm_call.symbol, 1), Leg.create(atm_put.symbol, 1) ] self.combo_market_order(legs, 1)
Strategy Payoff
The payoff of the strategy is
CATMT=(ST−KC)+PATMT=(KP−ST)+PT=(CATMT+PATMT−CATM0−PATM0)×m−feeThe following chart shows the payoff at expiration:

The maximum profit is unlimited if the underlying price rises to infinity or substantial, KP−COTM0−POTM0, if it drops to zero at expiration.
The maximum loss is the net debit paid, CATM0+PATM0. It occurs when the underlying price is the same at expiration as it was when you opened the trade. In this case, both Options expire worthless.
Example
The following table shows the price details of the assets in the algorithm at Option expiration (2017-05-20):
Asset | Price ($) | Strike ($) |
---|---|---|
Call | 22.30 | 835.00 |
Put | 23.90 | 835.00 |
Underlying Equity at expiration | 934.01 | - |
Therefore, the payoff is
CATMT=(ST−KC)+=(934.01−835.00)+=98.99PATMT=(KP−ST)+=(835.00−934.01)+=0PT=(CATMT+PATMT−CATM0−PATM0)×m−fee=(98.99+0−22.3−23.9)×100−1.00×2=5277So, the strategy gains $5,277.
The following algorithm implements a long straddle Option strategy:
class LongStraddleAlgorithm(QCAlgorithm): def initialize(self) -> None: self.set_start_date(2017, 4, 1) self.set_end_date(2017, 6, 30) self.set_cash(100000) option = self.add_option("GOOG") self.symbol = option.symbol option.set_filter(lambda universe: universe.include_weeklys().straddle(30)) def on_data(self, slice: Slice) -> None: if self.portfolio.invested: return chain = slice.option_chains.get(self.symbol, None) if not chain: return # Find ATM options with the nearest expiry expiry = min([x.expiry for x in chain]) contracts = sorted([x for x in chain if x.expiry == expiry], key=lambda x: abs(chain.underlying.price - x.strike)) if len(contracts) < 2: return # The first two contracts are the ATM Call and the ATM Put contracts = contracts[0:2] long_straddle = OptionStrategies.straddle(self.symbol, contracts[0].strike, expiry) self.buy(long_straddle, 1)