chore: import upstream snapshot with attribution
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wehub-resource-sync
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/*
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* QUANTCONNECT.COM - Democratizing Finance, Empowering Individuals.
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* Lean Algorithmic Trading Engine v2.0. Copyright 2014 QuantConnect Corporation.
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*
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* Licensed under the Apache License, Version 2.0 (the "License");
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* you may not use this file except in compliance with the License.
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* You may obtain a copy of the License at http://www.apache.org/licenses/LICENSE-2.0
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*
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* Unless required by applicable law or agreed to in writing, software
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* distributed under the License is distributed on an "AS IS" BASIS,
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* WITHOUT WARRANTIES OR CONDITIONS OF ANY KIND, either express or implied.
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* See the License for the specific language governing permissions and
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* limitations under the License.
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*/
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using System;
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using QuantConnect.Orders;
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using QuantConnect.Orders.Fees;
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namespace QuantConnect.Securities.Option
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{
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/// <summary>
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/// The option assignment model emulates exercising of short option positions in the portfolio.
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/// Simulator implements basic no-arb argument: when time value of the option contract is close to zero
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/// it assigns short legs getting profit close to expiration dates in deep ITM positions. User algorithm then receives
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/// assignment event from LEAN. Simulator randomly scans for arbitrage opportunities every two hours or so.
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/// </summary>
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public class DefaultOptionAssignmentModel : IOptionAssignmentModel
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{
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// when we start simulating assignments prior to expiration
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private readonly TimeSpan _priorExpiration;
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// we focus only on deep ITM calls and puts
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private readonly decimal _requiredInTheMoneyPercent;
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/// <summary>
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/// Creates a new instance
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/// </summary>
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/// <param name="requiredInTheMoneyPercent">The percent in the money the option has to be to trigger the option assignment</param>
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/// <param name="priorExpiration">For <see cref="OptionStyle.American"/>, the time span prior to expiration were we will try to evaluate option assignment</param>
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public DefaultOptionAssignmentModel(decimal requiredInTheMoneyPercent = 0.05m, TimeSpan? priorExpiration = null)
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{
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_priorExpiration = priorExpiration ?? new TimeSpan(4, 0, 0, 0);
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_requiredInTheMoneyPercent = requiredInTheMoneyPercent;
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}
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/// <summary>
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/// Get's the option assignments to generate if any
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/// </summary>
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/// <param name="parameters">The option assignment parameters data transfer class</param>
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/// <returns>The option assignment result</returns>
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public virtual OptionAssignmentResult GetAssignment(OptionAssignmentParameters parameters)
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{
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var option = parameters.Option;
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var underlying = parameters.Option.Underlying;
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// we take only options that expire soon
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if ((option.Symbol.ID.OptionStyle == OptionStyle.American && option.Symbol.ID.Date - option.LocalTime <= _priorExpiration ||
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option.Symbol.ID.OptionStyle == OptionStyle.European && option.Symbol.ID.Date.Date == option.LocalTime.Date)
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// we take only deep ITM strikes
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&& IsDeepInTheMoney(option))
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{
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// we estimate P/L
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var potentialPnL = EstimateArbitragePnL(option, (OptionHolding)option.Holdings, underlying);
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if (potentialPnL > 0)
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{
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return new OptionAssignmentResult(option.Holdings.AbsoluteQuantity, "Simulated option assignment before expiration");
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}
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}
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return OptionAssignmentResult.Null;
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}
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private bool IsDeepInTheMoney(Option option)
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{
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var symbol = option.Symbol;
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var underlyingPrice = option.Underlying.Close;
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// For some options, the price is based on a fraction of the underlying, such as for NQX.
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// Therefore, for those options we need to scale the price when comparing it with the
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// underlying. For that reason we use option.ScaledStrikePrice instead of
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// option.StrikePrice
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var result =
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symbol.ID.OptionRight == OptionRight.Call
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? (underlyingPrice - option.ScaledStrikePrice) / underlyingPrice > _requiredInTheMoneyPercent
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: (option.ScaledStrikePrice - underlyingPrice) / underlyingPrice > _requiredInTheMoneyPercent;
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return result;
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}
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private static decimal EstimateArbitragePnL(Option option, OptionHolding holding, Security underlying)
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{
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// no-arb argument:
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// if our long deep ITM position has a large B/A spread and almost no time value, it may be interesting for us
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// to exercise the option and close the resulting position in underlying instrument, if we want to exit now.
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// User's short option position is our long one.
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// In order to sell ITM position we take option bid price as an input
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var optionPrice = option.BidPrice;
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// we are interested in underlying bid price if we exercise calls and want to sell the underlying immediately.
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// we are interested in underlying ask price if we exercise puts
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var underlyingPrice = option.Symbol.ID.OptionRight == OptionRight.Call
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? underlying.BidPrice
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: underlying.AskPrice;
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// quantity is normally negative algo's holdings, but since we're modeling the contract holder (counter-party)
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// it's negative THEIR holdings. holding.Quantity is negative, so if counter-party exercises, they would reduce holdings
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var underlyingQuantity = option.GetExerciseQuantity(holding.Quantity);
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// Scenario 1 (base): we just close option position
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var marketOrder1 = new MarketOrder(option.Symbol, -holding.Quantity, option.LocalTime.ConvertToUtc(option.Exchange.TimeZone));
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var orderFee1 = option.FeeModel.GetOrderFee(
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new OrderFeeParameters(option, marketOrder1)).Value.Amount * option.QuoteCurrency.ConversionRate;
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var basePnL = (optionPrice - holding.AveragePrice) * -holding.Quantity
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* option.QuoteCurrency.ConversionRate
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* option.SymbolProperties.ContractMultiplier
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- orderFee1;
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// Scenario 2 (alternative): we exercise option and then close underlying position
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var optionExerciseOrder2 = new OptionExerciseOrder(option.Symbol, (int)holding.AbsoluteQuantity, option.LocalTime.ConvertToUtc(option.Exchange.TimeZone));
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var optionOrderFee2 = option.FeeModel.GetOrderFee(
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new OrderFeeParameters(option, optionExerciseOrder2)).Value.Amount * option.QuoteCurrency.ConversionRate;
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var underlyingOrderFee2Amount = 0m;
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// Cash settlements do not open a position for the underlying.
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// For Physical Delivery, we calculate the order fee since we have to close the position
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if (option.ExerciseSettlement == SettlementType.PhysicalDelivery)
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{
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var underlyingMarketOrder2 = new MarketOrder(underlying.Symbol, -underlyingQuantity,
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underlying.LocalTime.ConvertToUtc(underlying.Exchange.TimeZone));
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var underlyingOrderFee2 = underlying.FeeModel.GetOrderFee(
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new OrderFeeParameters(underlying, underlyingMarketOrder2)).Value.Amount * underlying.QuoteCurrency.ConversionRate;
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underlyingOrderFee2Amount = underlyingOrderFee2;
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}
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// calculating P/L of the two transactions (exercise option and then close underlying position)
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var altPnL = (underlyingPrice - option.ScaledStrikePrice) * underlyingQuantity * underlying.QuoteCurrency.ConversionRate * option.ContractUnitOfTrade
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- underlyingOrderFee2Amount
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- holding.AveragePrice * holding.AbsoluteQuantity * option.SymbolProperties.ContractMultiplier * option.QuoteCurrency.ConversionRate
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- optionOrderFee2;
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return altPnL - basePnL;
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}
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}
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}
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