Option Strategies

Follow these steps to implement the protective put strategy:

1. In the Initializeinitialize method, set the start date, end date, starting cash, and Options universe.
Select Language: C#Python

private Symbol _symbol;

public override void Initialize()
{
    SetStartDate(2014, 1, 1);
    SetEndDate(2014, 3, 1);
    SetCash(100000);

    UniverseSettings.Asynchronous = true;
    var option = AddOption("IBM");
    _symbol = option.Symbol;
    option.SetFilter(universe => universe.IncludeWeeklys().NakedPut(30, 0));
}

def initialize(self) -> None:
    self.set_start_date(2014, 1, 1)
    self.set_end_date(2014, 3, 1)
    self.set_cash(100000)

    self.universe_settings.asynchronous = True
    option = self.add_option("IBM")
    self._symbol = option.symbol
    option.set_filter(lambda universe: universe.include_weeklys().naked_put(30, 0))

The NakedPutnaked_put filter narrows the universe down to just the one contract you need to form a protective put.

2. In the OnDataon_data method, select the Option contract.
Select Language: C#Python

public override void OnData(Slice slice)
{
    if (Portfolio.Invested ||
        !slice.OptionChains.TryGetValue(_symbol, out var chain))
    {
        return;
    }

    // Find ATM put with the farthest expiry
    var expiry = chain.Max(x => x.Expiry);
    var atmPut = chain
        .Where(x => x.Right == OptionRight.Put && x.Expiry == expiry)
        .OrderBy(x => Math.Abs(x.Strike - chain.Underlying.Price))
        .FirstOrDefault();

def on_data(self, slice: Slice) -> None:
    if self.portfolio.invested:
        return

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

    # Find ATM put with the farthest expiry
    expiry = max([x.expiry for x in chain])
    put_contracts = sorted([x for x in chain
        if x.right == OptionRight.PUT and x.expiry == expiry],
        key=lambda x: abs(chain.underlying.price - x.strike))

    if not put_contracts:
        return

    atm_put = put_contracts[0]

3. In the OnDataon_data method, place the orders.

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

Select Language: C#Python

var protectivePut = OptionStrategies.ProtectivePut(_symbol, atmPut.Strike, expiry);
Buy(protectivePut, 1);

protective_put = OptionStrategies.protective_put(self._symbol, atm_put.strike, expiry)
self.buy(protective_put, 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 Language: C#Python

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

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

The payoff of the strategy is

The following chart shows the payoff at expiration:

The maximum profit is $S_T - S_0 - P^{K}_0$, which occurs when the underlying price is above the $S_0 + P^{K}_0$.

The maximum loss is $P^{K}_0$, which occurs when the underlying price drops.

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

Therefore, the payoff is

So, the strategy gains $139.

The following algorithm implements a protective put Option strategy:

public class ProtectivePutAlgorithm : QCAlgorithm
{
    private Symbol _put, _symbol;
    
    public override void Initialize()
    {
        SetStartDate(2014, 1, 1);
        SetEndDate(2014, 3, 1);
        SetCash(100000);

        var option = AddOption("IBM");
        _symbol = option.Symbol;
        option.SetFilter(universe => universe.IncludeWeeklys().NakedPut(30, 0));

        // use the underlying equity as the benchmark
        SetBenchmark(_symbol.Underlying);
    }

    public override void OnData(Slice slice)
    {
        if (_put != null && Portfolio[_put].Invested) return;

        if (!slice.OptionChains.TryGetValue(_symbol, out var chain)) return;

        // Find ATM put with the farthest expiry
        var expiry = chain.Max(x => x.Expiry);
        var atmPut = chain
            .Where(x=> x.Right == OptionRight.Put && x.Expiry == expiry)
            .OrderBy(x => Math.Abs(x.Strike - chain.Underlying.Price))
            .FirstOrDefault();

        if (atmPut == null) return;

        var protectivePut = OptionStrategies.ProtectivePut(_symbol, atmPut.Strike, expiry);
        Buy(protectivePut, 1);

        _put = atmPut.Symbol;
    }
}