Trading the VIX Futures Roll and Volatility Premiums with VIX Options

1from AlgorithmImports import *
2class TradingTheVIXFuturesRollAndVolatilityPremiumsWithVIXOptions(QCAlgorithm):
3def Initialize(self):
4self.SetStartDate(2010, 1, 1)
5self.SetCash(1000000)
6
7self.holding_period = 5         # holding each option contract for n days
8self.trade_percentage = 0.05    # each option contract has 5% of portfolio weight
9
10self.managed_queue = []
11
12index_symbol = self.AddIndex('VIX').Symbol
13option = self.AddIndexOption(index_symbol)
14option.SetFilter(-5, 5, 25, 35)
15self.vix_option_symbol = option.Symbol
16
17self.AddFuture(Futures.Indices.VIX).SetFilter(timedelta(0), timedelta(90))
18
19self.vix_symbol = self.AddData(CBOE, 'VIX').Symbol
20self.vix_price = None
21
22self.symbol = self.AddEquity('SPY', Resolution.Daily).Symbol
23
24self.Schedule.On(self.DateRules.EveryDay(self.symbol), self.TimeRules.AfterMarketOpen(self.symbol), self.Rebalance)
25def OnData(self, data):
26# vix data comes each day at 00:00
27if self.vix_symbol in data:
28    # get VIX CBOE price
29    vix_data = data.Get(CBOE, self.vix_symbol)
30    self.vix_price = vix_data.Value
31    
32option_chain = data.OptionChains.get(self.vix_option_symbol)
33# check if all needed data are ready
34if option_chain and self.vix_price and data.FuturesChains.Count != 0:
35    last_spot_vix_price = self.vix_price
36    self.vix_price = None # make sure daily selection
37    
38    # get contract with nearest expiration
39    futures_chain = [x for x in data.FuturesChains.Values][0]
40    futures_chain = [c for c in futures_chain.Contracts.Values]
41    
42    # make sure, there is future contract
43    if len(futures_chain) == 0:
44        return
45    
46    nearest_expiration_contract = sorted(futures_chain, key=lambda c: c.Expiry)[0]
47    
48    last_vix_future_price = nearest_expiration_contract.LastPrice
49    
50    # get contract expiration and today date
51    expiry_date = nearest_expiration_contract.Expiry.date()
52    today = self.Time.date()
53    
54    # calculate days to contract expiration
55    days_to_expiration = (expiry_date - today).days
56    
57    # can't perform division by zero
58    if days_to_expiration == 0:
59        return
60    
61    # calculate spread according to strategy description
62    spread = (last_vix_future_price - last_spot_vix_price) / days_to_expiration
63    
64    contract_type = None
65    
66    # determinate if contract should by put or call type
67    if spread < -0.10:
68        contract_type = 1
69    elif spread > 0.10:
70        contract_type = 0
71    
72    # make sure contract type is valid
73    if contract_type != None:
74        contracts = [contract for contract in option_chain if contract.Right == contract_type]
75        # filter ATM contract with latest expiration
76        contracts = sorted(contracts, key=lambda contract: abs(option_chain.Underlying.Price - contract.Strike))
77        # sort the ATM contracts by their expiration dates
78        contracts = sorted(contracts, key=lambda x:x.Expiry, reverse=True)
79    
80        # make sure there is at least one ATM contract with needed type
81        if len(contracts) > 0:
82            nearest_expiration_contract = contracts[0]
83            # add option contract with it's weight to managed queue
84            underlying_symbol = nearest_expiration_contract.UnderlyingSymbol
85            self.managed_queue.append(RebalanceItem(nearest_expiration_contract, underlying_symbol))
86                
87def Rebalance(self):
88remove_item = None
89
90for rebalance_item in self.managed_queue:
91    # trade new contract
92    if rebalance_item.holding_period == 0:
93        option_contract_symbol = rebalance_item.option_contract.Symbol
94        underlying_symbol = rebalance_item.underlying_symbol
95        if self.Securities.ContainsKey(option_contract_symbol) and self.Securities.ContainsKey(underlying_symbol):
96            if self.Securities[option_contract_symbol].Price != 0 and self.Securities[option_contract_symbol].IsTradable and self.Securities[underlying_symbol].Price != 0:
97                # calculate contract quantity
98                underlying_price = self.Securities[underlying_symbol].Price
99                quantity = self.Portfolio.TotalPortfolioValue / self.holding_period
100                quantity = np.floor((quantity / (underlying_price*100)) * self.trade_percentage)
101                
102                # buy contract
103                self.MarketOrder(option_contract_symbol, quantity)
104                rebalance_item.quantity = quantity
105    
106    # liquidate option contract
107    elif rebalance_item.holding_period == self.holding_period:
108        option_contract_symbol = rebalance_item.option_contract.Symbol
109        quantity = rebalance_item.quantity
110        
111        # liquidate only opened positions
112        if quantity != 0 and self.Portfolio[option_contract_symbol].Invested:
113            self.MarketOrder(option_contract_symbol, -quantity)
114            
115        remove_item = rebalance_item
116        
117    rebalance_item.holding_period += 1
118
119# remove liquidated option contract from managed queue    
120if remove_item:
121    self.managed_queue.remove(remove_item)
122            
123class RebalanceItem():
124def __init__(self, option_contract, underlying_symbol):
125self.quantity = 0
126self.holding_period = 0
127self.option_contract = option_contract
128self.underlying_symbol = underlying_symbol
129# Custom fee model
130class CustomFeeModel(FeeModel):
131def GetOrderFee(self, parameters):
132fee = parameters.Security.Price * parameters.Order.AbsoluteQuantity * 0.00005
133return OrderFee(CashAmount(fee, "USD"))