Invalidate option orders during a stock split (#7550)

* Invalidate option orders during a stock split

* Add unit test

* Minor changes

* Minor comments

* Options orders on split one time warning

Algorithm.CSharp/OptionOrdersOnSplitRegressionAlgorithm.cs

@@ -0,0 +1,134 @@
+/*
+ * QUANTCONNECT.COM - Democratizing Finance, Empowering Individuals.
+ * Lean Algorithmic Trading Engine v2.0. Copyright 2014 QuantConnect Corporation.
+ *
+ * Licensed under the Apache License, Version 2.0 (the "License");
+ * you may not use this file except in compliance with the License.
+ * You may obtain a copy of the License at http://www.apache.org/licenses/LICENSE-2.0
+ *
+ * Unless required by applicable law or agreed to in writing, software
+ * distributed under the License is distributed on an "AS IS" BASIS,
+ * WITHOUT WARRANTIES OR CONDITIONS OF ANY KIND, either express or implied.
+ * See the License for the specific language governing permissions and
+ * limitations under the License.
+*/
+
+using System;
+using System.Linq;
+using System.Collections.Generic;
+
+using QuantConnect.Data;
+using QuantConnect.Interfaces;
+using QuantConnect.Util;
+using QuantConnect.Orders;
+
+namespace QuantConnect.Algorithm.CSharp
+{
+    /// <summary>
+    /// Regression algorithm asserting that option orders are not allowed on split dates
+    /// </summary>
+    public class OptionOrdersOnSplitRegressionAlgorithm : QCAlgorithm, IRegressionAlgorithmDefinition
+    {
+        private Symbol _aapl;
+
+        private OrderTicket _ticket;
+
+        public override void Initialize()
+        {
+            SetStartDate(2014, 6, 5);
+            SetEndDate(2014, 6, 11);
+            SetCash(100000);
+
+            _aapl = AddEquity("AAPL", Resolution.Minute, extendedMarketHours: true, dataNormalizationMode: DataNormalizationMode.Raw).Symbol;
+
+            var option = AddOption(_aapl, Resolution.Minute);
+            option.SetFilter(-1, +1, 0, 365);
+        }
+
+        public override void OnData(Slice slice)
+        {
+            if (slice.Splits.TryGetValue(_aapl, out var split))
+            {
+                Debug($"Split: {Time} - {split}");
+
+                if (split.Type == SplitType.SplitOccurred)
+                {
+                    var contract = Securities.Values
+                        .Where(x => x.Type.IsOption() && !x.Symbol.IsCanonical())
+                        .OrderBy(x => x.Symbol.ID.StrikePrice)
+                        .First();
+                    _ticket = MarketOrder(contract.Symbol, 1);
+
+                    if (_ticket.Status != OrderStatus.Invalid ||
+                        _ticket.SubmitRequest.Response.IsSuccess ||
+                        _ticket.SubmitRequest.Response.ErrorCode != OrderResponseErrorCode.OptionOrderOnStockSplit ||
+                        _ticket.SubmitRequest.Response.ErrorMessage != "Options orders are not allowed when a split occurred for its underlying stock")
+                    {
+                        throw new Exception(
+                            $"Expected invalid order ticket with error code {nameof(OrderResponseErrorCode.OptionOrderOnStockSplit)}, " +
+                            $"but received {_ticket.SubmitRequest.Response.ErrorCode} - {_ticket.SubmitRequest.Response.ErrorMessage}");
+                    }
+                }
+            }
+        }
+
+        public override void OnEndOfAlgorithm()
+        {
+            if (_ticket == null)
+            {
+                throw new Exception("Expected invalid order ticket with error code OptionOrderOnStockSplit, but no order was submitted");
+            }
+        }
+
+        /// <summary>
+        /// This is used by the regression test system to indicate if the open source Lean repository has the required data to run this algorithm.
+        /// </summary>
+        public bool CanRunLocally { get; } = true;
+
+        /// <summary>
+        /// This is used by the regression test system to indicate which languages this algorithm is written in.
+        /// </summary>
+        public Language[] Languages { get; } = { Language.CSharp };
+
+        /// <summary>
+        /// Data Points count of all timeslices of algorithm
+        /// </summary>
+        public long DataPoints => 7082158;
+
+        /// <summary>
+        /// Data Points count of the algorithm history
+        /// </summary>
+        public int AlgorithmHistoryDataPoints => 0;
+
+        /// <summary>
+        /// This is used by the regression test system to indicate what the expected statistics are from running the algorithm
+        /// </summary>
+        public Dictionary<string, string> ExpectedStatistics => new Dictionary<string, string>
+        {
+            {"Total Trades", "0"},
+            {"Average Win", "0%"},
+            {"Average Loss", "0%"},
+            {"Compounding Annual Return", "0%"},
+            {"Drawdown", "0%"},
+            {"Expectancy", "0"},
+            {"Net Profit", "0%"},
+            {"Sharpe Ratio", "0"},
+            {"Probabilistic Sharpe Ratio", "0%"},
+            {"Loss Rate", "0%"},
+            {"Win Rate", "0%"},
+            {"Profit-Loss Ratio", "0"},
+            {"Alpha", "0"},
+            {"Beta", "0"},
+            {"Annual Standard Deviation", "0"},
+            {"Annual Variance", "0"},
+            {"Information Ratio", "-2.491"},
+            {"Tracking Error", "0.042"},
+            {"Treynor Ratio", "0"},
+            {"Total Fees", "$0.00"},
+            {"Estimated Strategy Capacity", "$0"},
+            {"Lowest Capacity Asset", ""},
+            {"Portfolio Turnover", "0%"},
+            {"OrderListHash", "d41d8cd98f00b204e9800998ecf8427e"}
+        };
+    }
+}

Algorithm/QCAlgorithm.Trading.cs

@@ -32,6 +32,7 @@ public partial class QCAlgorithm
         private bool _isMarketOnOpenOrderWarningSent;
         private bool _isMarketOnOpenOrderRestrictedForFuturesWarningSent;
         private bool _isGtdTfiForMooAndMocOrdersValidationWarningSent;
+        private bool _isOptionsOrderOnStockSplitWarningSent;
 
         /// <summary>
         /// Transaction Manager - Process transaction fills and order management.
@@ -1175,6 +1176,23 @@ private OrderResponse PreOrderChecksImpl(SubmitOrderRequest request)
                 throw new ArgumentException("Can not set a limit price using market combo orders");
             }
 
+            // Check for splits. Option are selected before the security price is split-adjusted, so in this time step
+            // we don't allow option orders to make sure they are properly filtered using the right security price.
+            if (request.SecurityType.IsOption() &&
+                CurrentSlice != null &&
+                CurrentSlice.Splits.Count > 0 &&
+                CurrentSlice.Splits.TryGetValue(request.Symbol.Underlying, out _))
+            {
+                if (!_isOptionsOrderOnStockSplitWarningSent)
+                {
+                    Debug("Warning: Options orders are not allowed when a split occurred for its underlying stock");
+                    _isOptionsOrderOnStockSplitWarningSent = true;
+                }
+
+                return OrderResponse.Error(request, OrderResponseErrorCode.OptionOrderOnStockSplit,
+                    "Options orders are not allowed when a split occurred for its underlying stock");
+            }
+
             // passes all initial order checks
             return OrderResponse.Success(request);
         }

Common/Orders/OrderResponseErrorCode.cs

@@ -188,6 +188,11 @@ public enum OrderResponseErrorCode
         /// <summary>
         /// Exercise time before expiry for European options (-33)
         /// </summary>
-        EuropeanOptionNotExpiredOnExercise = -33
+        EuropeanOptionNotExpiredOnExercise = -33,
+
+        /// <summary>
+        /// Option order is invalid due to underlying stock split (-34)
+        /// </summary>
+        OptionOrderOnStockSplit = -34
     }
 }

Tests/Algorithm/AlgorithmTradingTests.cs

@@ -28,6 +28,8 @@
 using QuantConnect.Tests.Common.Securities;
 using QuantConnect.Tests.Engine.DataFeeds;
 using System.Linq;
+using QuantConnect.Data;
+using QuantConnect.Indicators;
 
 namespace QuantConnect.Tests.Algorithm
 {
@@ -1459,6 +1461,28 @@ public void MarketOnOpenOrdersNotSupportedForFutures()
             Assert.That(ticket, Has.Property("Status").EqualTo(OrderStatus.Invalid));
         }
 
+        [Test]
+        public void OptionOrdersAreNotAllowedDuringASplit()
+        {
+            var algo = GetAlgorithm(out _, 1, 0);
+            var aapl = algo.AddEquity("AAPL");
+            var applOptionContract = algo.AddOptionContract(
+                Symbol.CreateOption(aapl.Symbol, Market.USA, OptionStyle.American, OptionRight.Call, 40m, new DateTime(2014, 07, 19)));
+
+            var splitDate = new DateTime(2014, 06, 09);
+            aapl.SetMarketPrice(new IndicatorDataPoint(splitDate, 650m));
+            applOptionContract.SetMarketPrice(new IndicatorDataPoint(splitDate, 5m));
+
+            algo.SetCurrentSlice(new Slice(splitDate, new[] { new Split(aapl.Symbol, splitDate, 650m, 1 / 7, SplitType.SplitOccurred) }, splitDate));
+
+            var ticket = algo.MarketOrder(applOptionContract.Symbol, 1);
+            Assert.AreEqual(OrderStatus.Invalid, ticket.Status);
+            Assert.IsTrue(ticket.SubmitRequest.Response.IsError);
+            Assert.AreEqual(OrderResponseErrorCode.OptionOrderOnStockSplit, ticket.SubmitRequest.Response.ErrorCode);
+            Assert.IsTrue(ticket.SubmitRequest.Response.ErrorMessage.Contains(
+                "Options orders are not allowed when a split occurred for its underlying stock", StringComparison.InvariantCulture));
+        }
+
         [TestCase(OrderType.MarketOnOpen)]
         [TestCase(OrderType.MarketOnClose)]
         public void GoodTilDateTimeInForceNotSupportedForMOOAndMOCOrders(OrderType orderType)
@@ -1631,6 +1655,7 @@ private QCAlgorithm GetAlgorithm(out Security msft, decimal leverage, decimal fe
             algo.Transactions.SetOrderProcessor(_fakeOrderProcessor);
             msft = algo.Securities[Symbols.MSFT];
             msft.SetLeverage(leverage);
+            algo.SetCurrentSlice(new Slice(DateTime.MinValue, Enumerable.Empty<BaseData>(), DateTime.MinValue));
             return algo;
         }