P&L calculation when backtesting options

In QuantConnect, if you hold a long position in an Option that expires in the money, LEAN automatically exercises it at the expiration date. If you don't want this automatic exercise, you can sell the Option or let it expire worthless if it's out of the money.

Here is how you can exercise an Option in Python:

ticket = self.ExerciseOption(contract_symbol, quantity)

If you do not have sufficient capital for the order, it's rejected. By default, Option exercise orders are synchronous and fill immediately.

However, if you're seeing the P&L continue to change after the expiration of the option, it might be a bug or an issue with your specific algorithm. It would be helpful to review your code and ensure that you're correctly handling the expiration and exercise of options.

For more details, you can refer to the QuantConnect Documentation.

What I am saying is that I've let the option expire and still LEAN continued to update the unrealized P&L after expiration. Attached is the code. You can run it with to two different end dates (after expiration which is June 15, 2018) and see that the unrealized P&L is different each time.

# region imports

from AlgorithmImports import *

# endregion

class DemoStrategy(QCAlgorithm):

    option = None

    option_symbol = None

    trade = False

    def Initialize(self):

        self.SetStartDate(2018, 6, 10)

        self.SetEndDate(2018, 6, 25)

        self.SetCash(500000)

        self.option = self.AddOption("SPY", Resolution.Hour)

        self.option_symbol = self.option.Symbol

        self.option.SetFilter(self.OptionUniverseFunc)

    def OptionUniverseFunc(self, universe: OptionFilterUniverse) -> OptionFilterUniverse:

        return universe.Strikes(-100, 100).Expiration(timedelta(days=0), timedelta(days=30))

    @staticmethod

    def FindClosestDelta(options: list, delta: float) -> int:

        dist = 9999999

        i_best = -1

        for i, option in enumerate(options):

            if abs(option.Greeks.Delta - delta) < dist:

                dist = abs(option.Greeks.Delta - delta)

                i_best = i

        return i_best

    def OnData(self, slice: Slice):

        option_chain = slice.OptionChains.get(self.option_symbol, None)

        if not option_chain:

            return

        if slice.Time.hour == 16:

            puts = [option for option in option_chain if option.Right == OptionRight.Put]

            i_delta = DemoStrategy.FindClosestDelta(puts, -0.7)

            option_to_trade = puts[i_delta]

            if not self.trade:

                self.Debug(f'{slice.Time} - buying option with strike {option_to_trade.Strike} expiry {option_to_trade.Expiry} and price {option_to_trade.AskPrice}')

                self.Buy(option_to_trade.Symbol, 1)

                self.trade = True

            self.Debug(f'{slice.Time} - Underlying price {option_to_trade.UnderlyingLastPrice}')

In your code, you are buying a put option but you are not explicitly handling the expiration or exercise of the option. In QuantConnect, if you hold a long position in an Option that expires in the money, LEAN automatically exercises it at the expiration date. However, if the option is out of the money, it will expire worthless.

If you are seeing the unrealized P&L continue to change after the expiration of the option, it might be due to the automatic exercise of the option by LEAN. If the option is in the money at expiration, LEAN will automatically exercise it and you will end up with a position in the underlying asset, which will continue to affect your P&L.

If you want to avoid this, you can sell the option before it expires or you can manually exercise it using the ExerciseOption method:

self.ExerciseOption(contract_symbol, quantity)

If you do not want to exercise the option and would rather let it expire, you can check the option's expiry date and sell it if the current date is the expiry date:

if self.contract_symbol.ID.Date == self.Time.Date:
    self.Sell(self.contract_symbol, quantity)

For more details, you can refer to the QuantConnect Documentation.