volatility-risk-premium-effect.py

# https://quantpedia.com/strategies/volatility-risk-premium-effect/
#
# Each month, at-the-money straddle, with one month until maturity, is sold at the bid price with a 5% option premium, and an offsetting 15%
# out-of-the-money puts are bought (at the ask price) as insurance against a market crash. The remaining cash and received option premium are
# invested in the index. The strategy is rebalanced monthly.

from AlgorithmImports import *


class VolatilityRiskPremiumEffect(QCAlgorithm):
    def Initialize(self):
        self.SetStartDate(2010, 1, 1)
        self.SetCash(100000)

        data = self.AddEquity("SPY", Resolution.Minute)
        data.SetLeverage(5)
        self.symbol = data.Symbol

        option = self.AddOption("SPY", Resolution.Minute)
        option.SetFilter(-20, 20, 25, 35)

        self.last_day = -1

    def OnData(self, slice):
        # Check once a day.
        if self.Time.day == self.last_day:
            return
        self.last_day = self.Time.day

        for i in slice.OptionChains:
            chains = i.Value

            if not self.Portfolio.Invested:
                # divide option chains into call and put options
                calls = list(filter(lambda x: x.Right == OptionRight.Call, chains))
                puts = list(filter(lambda x: x.Right == OptionRight.Put, chains))

                # if lists are empty return
                if not calls or not puts:
                    return

                underlying_price = self.Securities[self.symbol].Price
                expiries = [i.Expiry for i in puts]

                # determine expiration date nearly one month
                expiry = min(
                    expiries, key=lambda x: abs((x.date() - self.Time.date()).days - 30)
                )
                strikes = [i.Strike for i in puts]

                # determine at-the-money strike
                strike = min(strikes, key=lambda x: abs(x - underlying_price))

                # determine 15% out-of-the-money strike
                otm_strike = min(
                    strikes, key=lambda x: abs(x - float(0.85) * underlying_price)
                )

                atm_call = [
                    i for i in calls if i.Expiry == expiry and i.Strike == strike
                ]
                atm_put = [i for i in puts if i.Expiry == expiry and i.Strike == strike]
                otm_put = [
                    i for i in puts if i.Expiry == expiry and i.Strike == otm_strike
                ]

                if atm_call and atm_put and otm_put:
                    options_q = int(
                        self.Portfolio.MarginRemaining / (underlying_price * 100)
                    )

                    # Set max leverage.
                    self.Securities[atm_call[0].Symbol].MarginModel = BuyingPowerModel(
                        5
                    )
                    self.Securities[atm_put[0].Symbol].MarginModel = BuyingPowerModel(5)
                    self.Securities[otm_put[0].Symbol].MarginModel = BuyingPowerModel(5)

                    # sell at-the-money straddle
                    self.Sell(atm_call[0].Symbol, options_q)
                    self.Sell(atm_put[0].Symbol, options_q)

                    # buy 15% out-of-the-money put
                    self.Buy(otm_put[0].Symbol, options_q)

                    # buy index.
                    self.SetHoldings(self.symbol, 1)

            invested = [x.Key for x in self.Portfolio if x.Value.Invested]
            if len(invested) == 1:
                self.Liquidate(self.symbol)