Testing Covered Calls and Protective Calls with Batched Option Orders
Summary
This example demonstrates how an algorithm can submit a covered call through an option strategy helper and check the resulting position group. It selects a call contract near the underlying price, preferring later expirations among the sorted candidates, then submits the covered call in a batch. Its assertions check that the resulting group contains a call option short position and a corresponding long position in the underlying, sized according to the contract multiplier.
To close the position, the example submits the inverse protective call strategy. This is an implementation and position-accounting demonstration, not an evaluation of the strategies’ investment merits. It reports no market, premium, payoff, or backtest results, and the shown selection rule does not explain contract liquidity or other practical trading constraints.
Key ideas
- The algorithm uses a strategy helper to submit a covered call as a combined order.
- It chooses an option contract near the underlying price and favors later expirations.
- Assertions verify the short call and long underlying quantities in the resulting position group.
- The example closes the position by submitting the inverse protective call strategy.
- No performance evidence or contract-liquidity analysis is provided.
Tags
Full text
# CoveredAndProtectiveCallStrategiesAlgorithm
# CoveredAndProtectiveCallStrategiesAlgorithm
This algorithm demonstrate how to use OptionStrategies helper class to batch send orders for common strategies. In this case, the algorithm tests the Covered and Protective Call strategies.
## Source (Apache-2.0)
```python
# QUANTCONNECT.COM - Democratizing Finance, Empowering Individuals.
# Lean Algorithmic Trading Engine v2.0. Copyright 2014 QuantConnect Corporation.
#
# Licensed under the Apache License, Version 2.0 (the "License");
# you may not use this file except in compliance with the License.
# You may obtain a copy of the License at http://www.apache.org/licenses/LICENSE-2.0
#
# Unless required by applicable law or agreed to in writing, software
# distributed under the License is distributed on an "AS IS" BASIS,
# WITHOUT WARRANTIES OR CONDITIONS OF ANY KIND, either express or implied.
# See the License for the specific language governing permissions and
# limitations under the License.
from AlgorithmImports import *
from OptionStrategyFactoryMethodsBaseAlgorithm import *
### <summary>
### This algorithm demonstrate how to use OptionStrategies helper class to batch send orders for common strategies.
### In this case, the algorithm tests the Covered and Protective Call strategies.
### </summary>
class CoveredAndProtectiveCallStrategiesAlgorithm(OptionStrategyFactoryMethodsBaseAlgorithm):
def expected_orders_count(self) -> int:
return 4
def trade_strategy(self, chain: OptionChain, option_symbol: Symbol):
contracts = sorted(sorted(chain, key = lambda x: abs(chain.underlying.price - x.strike)),
key = lambda x: x.expiry, reverse=True)
if len(contracts) == 0: return
contract = contracts[0]
if contract != None:
self._covered_call = OptionStrategies.covered_call(option_symbol, contract.strike, contract.expiry)
self._protective_call = OptionStrategies.protective_call(option_symbol, contract.strike, contract.expiry)
self.buy(self._covered_call, 2)
def assert_strategy_position_group(self, position_group: IPositionGroup, option_symbol: Symbol):
positions = list(position_group.positions)
if len(positions) != 2:
raise AssertionError(f"Expected position group to have 2 positions. Actual: {len(positions)}")
option_position = [position for position in positions if position.symbol.security_type == SecurityType.OPTION][0]
if option_position.symbol.id.option_right != OptionRight.CALL:
raise AssertionError(f"Expected option position to be a call. Actual: {option_position.symbol.id.option_right}")
underlying_position = [position for position in positions if position.symbol.security_type == SecurityType.EQUITY][0]
expected_option_position_quantity = -2
expected_underlying_position_quantity = 2 * self.securities[option_symbol].symbol_properties.contract_multiplier
if option_position.quantity != expected_option_position_quantity:
raise AssertionError(f"Expected option position quantity to be {expected_option_position_quantity}. Actual: {option_position.quantity}")
if underlying_position.quantity != expected_underlying_position_quantity:
raise AssertionError(f"Expected underlying position quantity to be {expected_underlying_position_quantity}. Actual: {underlying_position.quantity}")
def liquidate_strategy(self):
# We should be able to close the position using the inverse strategy (a protective call)
self.buy(self._protective_call, 2)
```Shown in full with attribution under the source's licence. Licence: Apache-2.0
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.