Risk neutral options valuation (#906)

* Risk neutral hedge

* Changeable risk

* Added documentation

* Improved description

* Improved description

* Retry

Co-authored-by: Colin Delahunty <colindelahunty@Colins-MacBook-Air.local>

gamestonk_terminal/options/op_helpers.py

@@ -10,14 +10,14 @@ def get_loss_at_strike(strike: float, chain: pd.DataFrame) -> float:
 
     Parameters
     ----------
-    strike: Union[int,float]
+    strike : Union[int,float]
         Value to calculate total loss at
-    chain: Dataframe:
+    chain : Dataframe:
         Dataframe containing at least strike and openInterest
 
     Returns
     -------
-    loss: Union[float,int]
+    loss : Union[float,int]
         Total loss
     """
 
@@ -38,7 +38,7 @@ def calculate_max_pain(chain: pd.DataFrame) -> int:
 
     Parameters
     ----------
-    chain: DataFrame
+    chain : DataFrame
         Dataframe to calculate value from
 
     Returns
@@ -66,7 +66,7 @@ def convert(orig: str, to: str) -> float:
     """Convert a string to a specific type of number
     Parameters
     ----------
-    orig: str
+    orig : str
         String to convert
     Returns
     -------
@@ -82,6 +82,35 @@ def convert(orig: str, to: str) -> float:
     raise ValueError("Invalid to format, please use '%' or ','.")
 
 
+def rn_payoff(x: str, df: pd.DataFrame, put: bool, delta: int, rf: float) -> float:
+    """The risk neutral payoff for a stock
+    Parameters
+    ----------
+    x : str
+        Strike price
+    df : pd.DataFrame
+        Dataframe of stocks prices and probabilities
+    put : bool
+        Whether the asset is a put or a call
+    delta : int
+        Difference between today's date and expirations date in days
+    rf : float
+        The current risk-free rate
+
+    Returns
+    -------
+    number : float
+        Risk neutral value of option
+    """
+    if put:
+        df["Gain"] = np.where(x > df["Price"], x - df["Price"], 0)
+    else:
+        df["Gain"] = np.where(x < df["Price"], df["Price"] - x, 0)
+    df["Vals"] = df["Chance"] * df["Gain"]
+    risk_free = (1 + rf) ** (delta / 365)
+    return sum(df["Vals"]) / risk_free
+
+
 opt_chain_cols = {
     "lastTradeDate": {"format": "date", "label": "Last Trade Date"},
     "strike": {"format": "${x:.2f}", "label": "Strike"},

gamestonk_terminal/options/options_controller.py

@@ -10,6 +10,8 @@ from typing import List
 
 import matplotlib.pyplot as plt
 from colorama import Style
+import pandas as pd
+from tabulate import tabulate
 from prompt_toolkit.completion import NestedCompleter
 
 from gamestonk_terminal import feature_flags as gtff
@@ -75,6 +77,10 @@ class OptionsController:
         "payoff",
         "plot",
         "parity",
+        "add",
+        "rmv",
+        "show",
+        "rnval",
     ]
 
     CHOICES += CHOICES_COMMANDS
@@ -110,6 +116,7 @@ class OptionsController:
             "cmd",
             choices=self.CHOICES,
         )
+        self.prices = pd.DataFrame(columns=["Price", "Chance"])
 
     def print_help(self):
         """Print help."""
@@ -153,6 +160,13 @@ Current Expiry: {self.selected_date or None}
     parity        shows whether options are above or below expected price [Yfinance]
 
 >   payoff        shows payoff diagram for a selection of options [Yfinance]
+
+Options Pricing:
+    add           add an expected price to the list
+    rmv           remove an expected price from the list
+    show          show the listed of expected prices
+    rnval         risk neutral valuation for an option:
+
 {Style.RESET_ALL if not colored else ''}"""
         print(help_text)
 
@@ -1178,7 +1192,6 @@ Current Expiry: {self.selected_date or None}
             prog="parity",
             description="Shows whether options are over or under valued",
         )
-
         parser.add_argument(
             "-p",
             "--put",
@@ -1227,6 +1240,158 @@ Current Expiry: {self.selected_date or None}
         )
         print("")
 
+    @try_except
+    def call_add(self, other_args: List[str]):
+        """Process add command"""
+        parser = argparse.ArgumentParser(
+            add_help=False,
+            formatter_class=argparse.ArgumentDefaultsHelpFormatter,
+            prog="add",
+            description="Adds a price to the list",
+        )
+        parser.add_argument(
+            "-p",
+            "--price",
+            type=float,
+            required="-h" not in other_args,
+            dest="price",
+            help="Projected price of the stock at the expiration date",
+        )
+        parser.add_argument(
+            "-c",
+            "--chance",
+            type=float,
+            required="-h" not in other_args,
+            dest="chance",
+            help="Chance that the stock is at a given projected price",
+        )
+        ns_parser = parse_known_args_and_warn(parser, other_args)
+        if not ns_parser:
+            return
+        if ns_parser.price in self.prices["Price"].to_list():
+            df = self.prices[(self.prices["Price"] != ns_parser.price)]
+        else:
+            df = self.prices
+
+        new = {"Price": ns_parser.price, "Chance": ns_parser.chance}
+        df = df.append(new, ignore_index=True)
+        self.prices = df.sort_values("Price")
+
+    @try_except
+    def call_rmv(self, other_args: List[str]):
+        """Process rmv command"""
+        parser = argparse.ArgumentParser(
+            add_help=False,
+            formatter_class=argparse.ArgumentDefaultsHelpFormatter,
+            prog="rmv",
+            description="Removes a price from the list",
+        )
+        parser.add_argument(
+            "-p",
+            "--price",
+            type=float,
+            required="-h" not in other_args and "-a" not in other_args,
+            dest="price",
+            help="Price you want to remove from the list",
+        )
+        parser.add_argument(
+            "-a",
+            "--all",
+            action="store_true",
+            default=False,
+            dest="all",
+            help="Remove all prices from the list",
+        )
+        if other_args and "-" not in other_args[0]:
+            other_args.insert(0, "-p")
+        ns_parser = parse_known_args_and_warn(parser, other_args)
+        if not ns_parser:
+            return
+        if ns_parser.all:
+            self.prices = pd.DataFrame(columns=["Price", "Chance"])
+            return
+
+        self.prices = self.prices[(self.prices["Price"] != ns_parser.price)]
+
+    @try_except
+    def call_show(self, _):
+        """Process show command"""
+        print(f"Estimated price(s) of {self.ticker} at {self.selected_date}")
+        if gtff.USE_TABULATE_DF:
+            print(
+                tabulate(
+                    self.prices,
+                    headers=self.prices.columns,
+                    floatfmt=".2f",
+                    showindex=False,
+                    tablefmt="fancy_grid",
+                ),
+                "\n",
+            )
+        else:
+            print(self.prices.to_string, "\n")
+            print("")
+
+    @try_except
+    def call_rnval(self, other_args: List[str]):
+        """Process rnval command"""
+        parser = argparse.ArgumentParser(
+            add_help=False,
+            formatter_class=argparse.ArgumentDefaultsHelpFormatter,
+            prog="rnval",
+            description="The risk neutral value of the options",
+        )
+        parser.add_argument(
+            "-p",
+            "--put",
+            action="store_true",
+            default=False,
+            help="Show puts instead of calls",
+        )
+        parser.add_argument(
+            "-m",
+            "--min",
+            type=float,
+            default=None,
+            dest="mini",
+            help="Minimum strike price shown",
+        )
+        parser.add_argument(
+            "-M",
+            "--max",
+            type=float,
+            default=None,
+            dest="maxi",
+            help="Maximum strike price shown",
+        )
+        parser.add_argument(
+            "-r",
+            "--risk",
+            type=float,
+            default=None,
+            dest="risk",
+            help="The risk-free rate to use",
+        )
+        ns_parser = parse_known_args_and_warn(parser, other_args)
+        if not ns_parser:
+            return
+        if not self.ticker and not self.selected_date:
+            print("Ticker and expiration required. \n")
+            return
+        if sum(self.prices["Chance"]) != 1:
+            print("Total chances must equal one\n")
+            return
+
+        yfinance_view.risk_neutral_vals(
+            self.ticker,
+            self.selected_date,
+            ns_parser.put,
+            self.prices,
+            ns_parser.mini,
+            ns_parser.maxi,
+            ns_parser.risk,
+        )
+
 
 def menu(ticker: str = ""):
     """Options Menu."""

gamestonk_terminal/options/yfinance_view.py

@@ -496,17 +496,17 @@ def show_parity(
 
     Parameters
     ----------
-    ticker: str
+    ticker : str
         Ticker to get expirations for
-    exp: str
+    exp : str
         Expiration to use for options
-    put: bool
+    put : bool
         Whether to use puts or calls
-    ask: bool
+    ask : bool
         Whether to use ask or lastPrice
-    mini: float
+    mini : float
         Minimum strike price to show
-    maxi: float
+    maxi : float
         Maximum strike price to show
 
     """
@@ -567,8 +567,8 @@ def show_parity(
     if maxi is None:
         maxi = filtered.strike.quantile(0.75)
 
-    filtered = filtered.loc[filtered["strike"] > mini]
-    filtered = filtered.loc[filtered["strike"] < maxi]
+    filtered = filtered.loc[filtered["strike"] >= mini]
+    filtered = filtered.loc[filtered["strike"] <= maxi]
 
     show = filtered[["strike", diff]].copy()
 
@@ -590,3 +590,75 @@ def show_parity(
         print(show.to_string(index=False))
 
     print("")
+
+
+def risk_neutral_vals(
+    ticker: str,
+    exp: str,
+    put: bool,
+    df: pd.DataFrame,
+    mini: float,
+    maxi: float,
+    risk: float,
+) -> None:
+    """Prints current options prices and risk neutral values [Source: Yahoo Finance]
+
+    Parameters
+    ----------
+    ticker : str
+        Ticker to get expirations for
+    exp : str
+        Expiration to use for options
+    put : bool
+        Whether to use puts or calls
+    df : pd.DataFrame
+        Estimates for stocks prices and probabilities
+    mini : float
+        Minimum strike price to show
+    maxi : float
+        Maximum strike price to show
+    risk : float
+        The risk-free rate for the asset
+    """
+    if put:
+        chain = get_option_chain(ticker, exp).puts
+    else:
+        chain = get_option_chain(ticker, exp).calls
+
+    r_date = datetime.strptime(exp, "%Y-%m-%d").date()
+    delta = (r_date - date.today()).days
+    vals = []
+    if risk is None:
+        risk = get_rf()
+    for _, row in chain.iterrows():
+        vals.append(
+            [
+                row["strike"],
+                row["lastPrice"],
+                op_helpers.rn_payoff(row["strike"], df, put, delta, risk),
+            ]
+        )
+    new_df = pd.DataFrame(vals, columns=["Strike", "Last Price", "Value"], dtype=float)
+    new_df["Difference"] = new_df["Last Price"] - new_df["Value"]
+
+    if mini is None:
+        mini = new_df.Strike.quantile(0.25)
+    if maxi is None:
+        maxi = new_df.Strike.quantile(0.75)
+
+    new_df = new_df[new_df["Strike"] >= mini]
+    new_df = new_df[new_df["Strike"] <= maxi]
+
+    if gtff.USE_TABULATE_DF:
+        print(
+            tabulate(
+                new_df,
+                headers=[x.title() for x in new_df.columns],
+                tablefmt="fancy_grid",
+                showindex=False,
+                floatfmt=".2f",
+            )
+        )
+    else:
+        print(new_df.to_string(index=False))
+    print("")

gamestonk_terminal/portfolio/portfolios/cash.csv

@@ -0,0 +1,12 @@
+Name,Type,Quantity,Date,Price,Fees,Premium,Side
+cash,cash,1.0,2021/1/22,2000.0,,,deposit
+cash,cash,1.0,2021/2/22,2000.0,,,deposit
+cash,cash,1.0,2021/3/22,2000.0,,,deposit
+cash,cash,1.0,2021/4/22,2000.0,,,deposit
+cash,cash,1.0,2021/5/22,2000.0,,,deposit
+cash,cash,1.0,2021/6/22,2000.0,,,deposit
+cash,cash,1.0,2021/7/22,2000.0,,,deposit
+cash,cash,1.0,2021/8/22,2000.0,,,deposit
+cash,cash,1.0,2021/9/22,2000.0,,,deposit
+cash,cash,1.0,2021/10/22,2000.0,,,deposit
+cash,cash,1.0,2021/11/22,2000.0,,,deposit

gamestonk_terminal/portfolio/portfolios/james.csv

@@ -0,0 +1,5 @@
+Name,Type,Quantity,Date,Price,Fees,Premium,Side
+cash,cash,1.0,2021/3/24,2000.0,,,deposit
+aapl,stock,10,2021/3/24,120.7,0,0,Buy
+msft,stock,3,2021/3/26,232.8,0,0,Buy
+aapl,stock,5,2021/7/2,139.8,0,0,Sell

gamestonk_terminal/portfolio/portfolios/market.csv

@@ -0,0 +1,4 @@
+Name,Type,Quantity,Date,Price,Fees,Premium,Side
+spy,stock,1.0,2019/10/21,200.0,,,Buy
+cash,cash,1.0,2019/10/21,200.0,,,deposit
+cash,cash,1.0,2021/6/21,200.0,,,withdrawal

website/content/options/add/_index.md

@@ -0,0 +1,12 @@
+```
+usage: add [-p] [-c] [-h]
+```
+
+add a stock price and probability to the list
+
+```
+optional arguments:
+  -p PRICE, --PRICE     the estimated finishing price of the asset
+  -c CHANCE, --CHANCE   the chance of the asset ending at the given price
+  -h, --help            show this help message (default: False)
+```

website/content/options/rmv/_index.md

@@ -0,0 +1,12 @@
+```
+usage: rmv [-p] [-c] [-h]
+```
+
+remove a stock price from the list
+
+```
+optional arguments:
+  -p PRICE, --PRICE     the estimated finishing price of the asset
+  -a, --all             remove all items from the list of tickers
+  -h, --help            show this help message (default: False)
+```

website/content/options/rnval/_index.md

@@ -0,0 +1,28 @@
+```
+usage: rnval [-p] [-m MIN] [-M MAX] [-r RISK] [-h]
+```
+
+calculates the expcected value of a given option by multiplying
+the payoff at each predicted stock price by the probability of 
+that stock price happening. This expected profit is divided by
+one plus the risk free rate to determine the value of those
+future dollars today. The expected payoff for each strike price
+is then compared with the last traded price to determine if there
+are differences in the market.
+
+For example, if you assume the price of AAPL has an equal chance
+of finishing at $100 or $200 for a given expiration, you could use
+this to value an option at that expiration. To value a call with a
+strike of $150, you would calculate the payoff for each stock price,
+which would be $0 and $50. Then, we caclulate the weighted average
+payoff of $25. We need to divide this amount by the risk-free rate,
+assumed to be 0.02. So the value of this option expiring in one year
+is 25/1.02, or $24.51.
+```
+optional arguments:
+  -p, --put             flag to calculate put option (default: False)
+  -m MIN, --min MIN     min price to look at (default: -1)
+  -M MAX, --max MAX     max price to look at (default: -1)
+  -r RISK, --risk RISK  use a custom risk-free amount (default: None)
+  -h, --help            show this help message (default: False)
+```

website/content/options/show/_index.md

@@ -0,0 +1,10 @@
+```
+usage: show [-h]
+```
+
+show the list of stocks prices and probabilities
+
+```
+optional arguments:
+  -h, --help            show this help message (default: False)
+```

website/data/menu/main.yml

@@ -551,6 +551,14 @@ main:
         ref: "/portfolio/portfolio_optimization"
       - name: parity
         ref: "/options/parity"
+      - name: add
+        ref: "/options/add"
+      - name: rmv
+        ref: "/options/rmv"
+      - name: show
+        ref: "/options/show"
+      - name: rnval
+        ref: "/options/rnval"
       - name: payoff
         ref: "/options/payoff"
         sub: