Option Strategies
Short Put Backspread
Introduction
Short Put Backspread, consists of short 1 higher-strike put and short 2 lower-strike puts. It is a combination of a bear put spread and a short put with the same strike price as the lower-strike leg the put spread. All puts have the same underlying Equity and expiration date. This strategy profits from stable, consistent price of the underlying asset. For instance, the underlying price stays at its current price.
Implementation
Follow these steps to implement the short put backspread strategy:
- In the
initialize
method, set the start date, end date, cash, and Option universe. You can use theput_spread
helper method in option universe filtering, since a put backspread consists of the same contracts as a put spread. - 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, 4, 1) self.set_end_date(2017, 4, 22) self.set_cash(1000000) self.universe_settings.asynchronous = True option = self.add_option("GOOG", Resolution.MINUTE) self._symbol = option.symbol option.set_filter(lambda universe: universe.include_weeklys().put_spread(20, 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 # Select the put Option contracts with the furthest expiry expiry = max([x.expiry for x in chain]) puts = [i for i in chain if i.expiry == expiry] if not puts: return # Select the strike prices from the remaining contracts strikes = sorted(set(x.strike for x in puts)) if len(strikes) < 2: return low_strike = strikes[0] high_strike = strikes[1]
Approach A: Call the OptionStrategies.short_put_backspread
method with the details of each leg and then pass the result to the buy
method.
option_strategy = OptionStrategies.short_put_backspread(self._symbol, high_strike, low_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.
low_strike_put = next(filter(lambda x: x.strike == low_strike, puts)) high_strike_put = next(filter(lambda x: x.strike == high_strike, puts)) legs = [ Leg.create(low_strike_put.symbol, -2), Leg.create(high_strike_put.symbol, 1) ] self.combo_market_order(legs, 1)
Strategy Payoff
The short put backspread is an unlimited-profit-limited-risk strategy. The payoff is
PlowT=(Klow−ST)+PhighT=(Khigh−ST)+PayoffT=(PhighT−Phigh0−PlowT×2+Plow0×2)×m−feeThe following chart shows the payoff at expiration:

The maximum profit is Khigh−Klow−Phigh0+Plow0×2, which occurs when the underlying price is exactly at the lower strike at expiry.
The maximum loss is Plow0×2−Phigh0−ST, which occurs when the underlying price drops to zero.
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 ($) | Strike ($) |
---|---|---|
Lower-Strike put | 4.70 | 825.00 |
Higher-strike put | 10.90 | 835.00 |
Underlying Equity at expiration | 843.19 | - |
Therefore, the payoff is
PlowT=(Klow−ST)+=(825.00−843.19)+=0.00PhighT=(Khigh−ST)+=(835.00−843.19)+=0.00PayoffT=(PhighT−Phigh0−PlowT×2+Plow0×2)×m−fee=(0−10.90−0.00×2+4.70×2)×100−2.30=−152.30So, the strategy loses $152.30.
The following algorithm implements a short put backspread Option strategy:
class BackspreadOptionStrategyAlgorithm(QCAlgorithm): def initialize(self) -> None: self.set_start_date(2017, 4, 1) self.set_end_date(2017, 4, 22) self.set_cash(1000000) self.universe_settings.asynchronous = True option = self.add_option("GOOG", Resolution.MINUTE) self._symbol = option.symbol option.set_filter(lambda universe: universe.include_weeklys().put_spread(20, 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 # Select the call Option contracts with the furthest expiry expiry = max([x.expiry for x in chain]) puts = [i for i in chain if i.expiry == expiry] if not puts: return # Select the strike prices from the remaining contracts strikes = sorted(set(x.strike for x in puts)) if len(strikes) < 2: return low_strike = strikes[0] high_strike = strikes[1] option_strategy = OptionStrategies.short_put_backspread(self._symbol, high_strike, low_strike, expiry) self.buy(option_strategy, 1)