Calculating profit/loss of one-leg or two-leg option strategies

Hi Nick,

Here is my attempt based on our bull call spread tutorial. self.CheckProfit is called if we have invested in options, and the profit is calculated there. You could calculate profit for all vertical spreads in the same way. Here is more information about usage of option data, and here is an introduction to our Securities and Portfolio objects. 

Hope it helps to implement your own strategy.

Hi Link,

Thanks for your code! It is very helpful. I have a few questions regarding the profit in the code above:

profit = (-buy.AskPrice + max(buy.Strike - self.Securities[buy.UnderlyingSymbol].Price, 0)) * 100 * self.Portfolio[buy.Symbol].Quantity +(-sell.BidPrice + max(sell.Strike - self.Securities[sell.UnderlyingSymbol].Price, 0)) * 100 * self.Portfolio[sell.Symbol].Quantity

1) I used the formula below to calculate the profits and the results are very different from the above. I can't exlain why?

profit2 = self.Portfolio[sell.Symbol].UnrealizedProfit + self.Portfolio[buy.Symbol].UnrealizedProfit

2) I assume this is the profits before exercise date (manually exercising). Will it be more accurate to use buy.FillPrice and sell.FillPrice?

3) Is the formula for theoretical profit or real profits?

Thanks!!!

Hi Link,

I have attached the backtest. I see something that I can't explain. It is obvious that profit2 is the Unralized profit = $258 (can be verified in the backtest). But as it can be seen equity is $600,348.00. We only had one vertical trade which is not exercised. How has the equity increased above original cash = $600,000? (Is that becasue of implied volatility?)  

Thanks for your time

Hi Nick,

1) It is very different because it is calculated in a completely different way. When we calculate UnrealizedProfit, the algorithm actually simulates a self.Liquidate() instead of a manual exercising. For example,  here is the order information of our initial purchases:

And if you try to Liquidate immediately after that, here are the log:

With some calculation (with consideration of order fee), you would find the actual profit after these transactions is the "profit2" - self.Portfolio.TotalUnrealizedProfit.

In fact, if we run this algorithm longer, those two calculations gets closer until reach the same value at the moment when options expire.

2) Yes you are right, we should use buy.FillPrice and sell.FillPrice. You could access them in OnOrderEvent(){https://www.quantconnect.com/docs/algorithm-reference/trading-and-orders#Trading-and-Orders-Order-Events}. However, by self.Buy() and self.Sell() we actually make MarketOrder which fills immediately, the fill price is buy.AskPrice and sell.BidPrice for buy and sell repectively.

3) It's theoretical profit. It calculates the profit if the options expire immediately and exersice.

4) The "total equity" you see is actually self.Portfolio.TotalPortfolioValue . It stands for the current market price of all of your holdings. As the price goes up, the total value of the two options we are holding also goes up and that's why you see the total holding value is not exactly the original cash in hand.

Hi Link, Thanks a lot for the detailed answers!!

Regarding item 4)  Correct, but I expect the total portfolio value to be self.Portfolio.TotalPortfolioValue + self.Portfolio.UnrealizedProfit  but in this case it doesn't add up to $600,258 

Hi Nick,

The headers are from streaming packets sent from LEAN, they are not precise, and for display purposes only. If you're concerned about the specific profit and loss please use the self.Portfolio.TotalPortfolioValue and self.Portfolio.TotalProfit. More usage of portfolio properties can be found here. Thanks for your support!