R/box_spread.R

In roptions: Option Strategies and Valuation

#' @title Box Spread Strategy Function
#' @description This function can be used to develop a box spread strategy for options. A box spread is an options arbitrage strategy that combines buying a bull call spread with a matching bear put spread
#' @param k_long_call Excercise Price of Long call Option
#' @param k_short_call Excercise Price of Short call Option
#' @param k_long_put Excercise Price of Long Put Optioon
#' @param k_short_put Excercise Price of Short Put Option
#' @param c1 Premium of Long Call Option
#' @param c2 Premium of Short Call Option
#' @param p1 Premium of Long Put Option
#' @param p2 Premium of Short Put Option
#' @param llimit Lower limit of stock price at Expiration., Default: 20
#' @param ulimit Upper Limit of Stock Price at Expiration, Default: 20
#' @return Returns the profit/loss generated from the strategy along with the profit/loss of individual contract and an interactive graph for the same.
#' @details To construct a box spread, a trader buys an in-the-money (ITM) call, sells an out-of-the-money (OTM) call, buys an ITM put and sells an OTM put. In other words, buy an ITM call and put and then sell an OTM call and put.
#' @examples
#' box.spread(100, 105, 95, 110, 3.2, 2.6, 1.1, 2.4)
#' @rdname box.spread
#' @export
#' @importFrom purrr map_dbl
#' @import ggplot2
#' @importFrom plotly ggplotly
#' @importFrom stats pnorm
box.spread = function(k_long_call, k_short_call, k_long_put, k_short_put, c1, c2, p1, p2, llimit = 20, ulimit = 20){
  stock_price_at_expiration = round((k_long_call - llimit)):round((ulimit + k_long_call))
  long_call = (map_dbl(stock_price_at_expiration , .f = ~max(.x - k_long_call,0))) - c1
  short_call =  (-1* map_dbl(stock_price_at_expiration, .f = ~max(.x - k_short_call,0))) + c2
  long_put = (map_dbl(stock_price_at_expiration, .f = ~max(k_long_put - .x,0))) - p1
  short_put = put_option = ( -1 * map_dbl(stock_price_at_expiration, .f = ~max(k_short_put - .x,0))) + p2
  profit_loss = long_call + short_call + long_put + short_put
  df = data.frame(stock_price_at_expiration, long_call, short_call, long_put, short_put, profit_loss)
  p1 = ggplot(data = df) +
    geom_line(aes(x = stock_price_at_expiration, y = long_call, colour = 'long_call')) +
    geom_line(aes(x = stock_price_at_expiration, y = short_call, colour = 'short_call')) +
    geom_line(aes(x = stock_price_at_expiration, y = long_put, colour = 'long_put')) +
    geom_line(aes(x = stock_price_at_expiration, y = short_put, colour = 'short_put')) +
    labs(x = 'stock price at expiration', y = 'profit/loss', title = 'Box Spread Plot', color = 'Option contract') +
    scale_colour_manual('', breaks = c('long_call', 'short_call', 'profit_loss', 'long_put', 'short_put'), values = c('blue', 'red', 'black', 'green', 'yellow'))
  print(df)
  print(ggplotly(p1))
}