Option Strategies Tagged in Portfolio Analysis - sgajbi/options-portfolio-rebalancer GitHub Wiki

This document outlines the various option strategies identified and tagged by the tag_option_strategies function within our portfolio analysis system. The function processes individual option and equity positions to recognize common multi-leg and single-leg option strategies, assigning a descriptive tag and calculating relevant coverage percentages.

1. Long Straddle

  • Definition: A strategy involving the simultaneous purchase of both a Call and a Put option on the same underlying asset, with the same strike price and the same expiration date. This strategy is employed when an investor anticipates a significant price movement in the underlying asset, but is unsure of the direction.
  • Identification Logic: The tag_option_strategies function identifies a Long Straddle by looking for a pair of options with:
    • The same symbol.
    • The same expiry date.
    • The same strike price.
    • Both options having a position of "Long" (one "Call" and one "Put").
  • Expected Tag: Long Straddle
  • Coverage: 0.0% (Equity coverage is not applicable as this is an options-only strategy.)

2. Short Straddle

  • Definition: A strategy involving the simultaneous sale (writing) of both a Call and a Put option on the same underlying asset, with the same strike price and the same expiration date. This strategy profits when the underlying asset's price remains relatively stable, as both options will expire worthless or be bought back for a lower premium.
  • Identification Logic: The tag_option_strategies function identifies a Short Straddle by looking for a pair of options with:
    • The same symbol.
    • The same expiry date.
    • The same strike price.
    • Both options having a position of "Short" (one "Call" and one "Put").
  • Expected Tag: Short Straddle
  • Coverage: 00.0% (Equity coverage is not applicable.)

3. Long Strangle

  • Definition: A strategy where an investor simultaneously buys an out-of-the-money (OTM) Call option and an OTM Put option on the same underlying asset, with different strike prices but the same expiration date. The Call strike is higher than the Put strike. This strategy profits from large price movements, similar to a straddle, but at a lower initial cost.
  • Identification Logic: The tag_option_strategies function identifies a Long Strangle by looking for a pair of options with:
    • The same symbol.
    • The same expiry date.
    • Different strike prices, where the "Call" strike is greater than the "Put" strike.
    • Both options having a position of "Long" (one "Call" and one "Put").
  • Expected Tag: Long Strangle
  • Coverage: 0.0% (Equity coverage is not applicable.)

4. Short Strangle

  • Definition: A strategy where an investor simultaneously sells (writes) an out-of-the-money (OTM) Call option and an OTM Put option on the same underlying asset, with different strike prices but the same expiration date. The Call strike is higher than the Put strike. This strategy profits when the underlying asset's price stays within the range defined by the two strike prices.
  • Identification Logic: The tag_option_strategies function identifies a Short Strangle by looking for a pair of options with:
    • The same symbol.
    • The same expiry date.
    • Different strike prices, where the "Call" strike is greater than the "Put" strike.
    • Both options having a position of "Short" (one "Call" and one "Put").
  • Expected Tag: Short Strangle
  • Coverage: 0.0% (Equity coverage is not applicable.)

5. Call Vertical Spread

  • Definition: A two-leg strategy involving the simultaneous purchase and sale of Call options on the same underlying asset with the same expiration date but different strike prices. This limits both the potential profit and potential loss, making it a defined-risk strategy.
    • Bull Call Spread: Long lower strike Call, Short higher strike Call.
    • Bear Call Spread: Short lower strike Call, Long higher strike Call.
  • Identification Logic: The tag_option_strategies function identifies a Call Vertical Spread by looking for a pair of Call options with:
    • The same symbol.
    • The same expiry date.
    • Different strike prices.
    • Opposite position types (one "Long" and one "Short").
  • Expected Tag: Call Vertical Spread
  • Coverage: 0.0% (Equity coverage is not applicable.)

6. Put Vertical Spread

  • Definition: A two-leg strategy involving the simultaneous purchase and sale of Put options on the same underlying asset with the same expiration date but different strike prices. Similar to Call spreads, this strategy defines both the maximum potential profit and loss.
    • Bull Put Spread: Short higher strike Put, Long lower strike Put.
    • Bear Put Spread: Long higher strike Put, Short lower strike Put.
  • Identification Logic: The tag_option_strategies function identifies a Put Vertical Spread by looking for a pair of Put options with:
    • The same symbol.
    • The same expiry date.
    • Different strike prices.
    • Opposite position types (one "Long" and one "Short").
  • Expected Tag: Put Vertical Spread
  • Coverage: 0.0% (Equity coverage is not applicable.)

7. Covered Call

  • Definition: A strategy where an investor sells (writes) Call options against shares of the underlying stock they already own. The ownership of the shares "covers" the obligation to deliver the stock if the option is exercised, limiting risk while generating income from the option premium.
  • Identification Logic: The tag_option_strategies function identifies a Covered Call by:
    • Finding a "Short Call" option.
    • Confirming that there is a positive quantity of the corresponding Equity position for the same symbol.
  • Expected Tag: Covered Call
  • Coverage: 100.0% (Indicates the option's notional value is fully covered by held shares. If the equity quantity is less than the option's notional, the percentage would be lower, but for a "Covered Call" tag, it implies at least 100% notional coverage for the option contracts.)

8. Protective Put

  • Definition: A strategy where an investor buys a Put option on a stock they already own. This acts as an insurance policy, protecting the investor from a significant decline in the stock's price below the put's strike price, while still allowing them to benefit from any upward movement.
  • Identification Logic: The tag_option_strategies function identifies a Protective Put by:
    • Finding a "Long Put" option.
    • Confirming that there is a positive quantity of the corresponding Equity position for the same symbol.
  • Expected Tag: Protective Put
  • Coverage: 100.0% (Indicates the option's notional value is fully protecting the held shares.)

9. Naked Options

  • Definition: Any single option position (either long or short) that is not part of a recognized multi-leg strategy (like spreads, straddles, strangels) and, in the case of short options, is not covered by an underlying equity position. Naked short options carry significant risk (e.g., theoretically unlimited for naked short calls).
  • Identification Logic: The tag_option_strategies function applies the "Naked" tag to any option that:
    • Is a single option leg (not part of a pair or spread).
    • For a "Short Call" or "Short Put", there is no corresponding Equity position (or insufficient equity to cover the notional of the option contract).
  • Expected Tag: Naked
  • Coverage: 0.0% (By definition, these positions have no equity coverage.)