from AlgoLib import *
class ExploitVolatilityRiskPremium(XXX):
'''
A strategy that exploits the volatility risk premium in the SPY ETF. It involves selling at-the-money straddles,
buying out-of-the-money puts for protection, and investing in the SPY ETF with remaining funds.
'''
def Initialize(self):
'''
Initializes the algorithm settings, including start date, initial cash, equity, and options.
Sets leverage for the equity and filters for the option chain.
'''
self.SetStartDate(2012, 1, 1) # Set the backtest start date
self.SetCash(100000) # Set the initial cash for the backtest
equity = self.AddEquity("SPY", Resolution.Minute) # Add SPY ETF as an equity with minute resolution
equity.SetLeverage(5) # Set leverage for the equity
self.spy_symbol = equity.Symbol # Save the SPY symbol for later use
option_contract = self.AddOption("SPY", Resolution.Minute) # Add SPY option with minute resolution
option_contract.SetFilter(-20, 20, 30, 60) # Set a filter for strike price range and expiration days
self.prev_day = -1 # Initialize a variable to track the previous day processed
def OnData(self, data):
'''
Executes the trading logic once per day when new data is received.
Sells at-the-money straddles, buys out-of-the-money puts for protection,
and allocates remaining funds to SPY ETF.
'''
# Execute logic once per day
if self.Time.day == self.prev_day:
return # Skip if already processed this day
self.prev_day = self.Time.day # Update the previous day processed
for option_chain in data.OptionChains: # Iterate through each option chain in the data
chains = option_chain.Value # Get the actual option chain
if not self.Portfolio.Invested: # Check if the portfolio is not yet invested
calls = [opt for opt in chains if opt.Right == OptionRight.Call] # Filter for call options
puts = [opt for opt in chains if opt.Right == OptionRight.Put] # Filter for put options
if not calls or not puts:
return # Skip if no calls or puts available
market_price = self.Securities[self.spy_symbol].Price # Get the current market price of SPY
expiry_dates = [opt.Expiry for opt in puts] # Get expiry dates for puts
# Choose the expiry close to one month away
chosen_expiry = min(expiry_dates, key=lambda x: abs((x - self.Time).days - 30))
strike_prices = [opt.Strike for opt in puts] # Get strike prices for puts
# Select the at-the-money (ATM) strike
atm_strike = min(strike_prices, key=lambda x: abs(x - market_price))
# Select the 15% out-of-the-money (OTM) put strike
otm_put_strike = min(strike_prices, key=lambda x: abs(x - 0.85 * market_price))
atm_calls = [opt for opt in calls if opt.Expiry == chosen_expiry and opt.Strike == atm_strike] # Filter for ATM calls
atm_puts = [opt for opt in puts if opt.Expiry == chosen_expiry and opt.Strike == atm_strike] # Filter for ATM puts
otm_puts = [opt for opt in puts if opt.Expiry == chosen_expiry and opt.Strike == otm_put_strike] # Filter for OTM puts
if atm_calls and atm_puts and otm_puts:
qty = int(self.Portfolio.MarginRemaining / (market_price * 100)) # Calculate quantity to trade
# Sell ATM straddle (both call and put)
self.Sell(atm_calls[0].Symbol, qty)
self.Sell(atm_puts[0].Symbol, qty)
# Buy OTM put as a protective measure
self.Buy(otm_puts[0].Symbol, qty)
# Allocate remaining funds to SPY ETF
self.SetHoldings(self.spy_symbol, 1)
# Liquidate SPY holding if it's the only position left
if len([x.Key for x in self.Portfolio if x.Value.Invested]) == 1:
self.Liquidate(self.spy_symbol)
