add code to cancel opposing quantities

Author: Graeme22

pyproject.toml

@@ -4,7 +4,7 @@ build-backend = "hatchling.build"
 
 [project]
 name = "margin-estimator"
-version = "0.2"
+version = "0.3"
 description = "Calculate estimated margin requirements for equities options, based on CBOE margining."
 readme = "README.md"
 requires-python = ">=3.11"

src/margin_estimator/margin.py

@@ -14,11 +14,21 @@
 
 
 def calculate_margin(legs: list[Option], underlying: Underlying) -> MarginRequirements:
+    # step 0: cancel out opposing positions
+    netted: dict[tuple[date, Decimal, str], Option] = {}
+    for leg in legs:
+        key = (leg.expiration, leg.strike, leg.type.value)
+        if key in netted:
+            netted[key] = netted[key].model_copy(
+                update={"quantity": netted[key].quantity + leg.quantity}
+            )
+        else:
+            netted[key] = leg
+    legs = [leg for leg in netted.values() if leg.quantity != 0]
+
     # sort by expiry to cover near-term risk first
     shorts = sorted(leg for leg in legs if leg.quantity < 0)
-    longs = {
-        leg: leg.quantity for leg in sorted([leg for leg in legs if leg.quantity > 0])
-    }
+    longs = {leg: leg.quantity for leg in sorted(l for l in legs if l.quantity > 0)}
     covered: list[Option] = []
     naked_shorts: list[Option] = []
 

test.py

@@ -9,6 +9,8 @@
     Underlying,
     calculate_margin,
 )
+from margin_estimator.margin import ZERO
+from margin_estimator.models import MarginRequirements
 
 
 def test_long_option():
@@ -914,3 +916,32 @@ def test_complex_multi_strategy_position():
         underlying,
     )
     assert total == vertical + orphan_spread + strangle + mismatched_spread
+
+
+def test_cancel_opposing_positions():
+    underlying = Underlying(price=500)
+    long = Option(
+        expiration=date.today(), price=10, quantity=1, strike=510, type=OptionType.CALL
+    )
+    short = Option(
+        expiration=date.today(), price=10, quantity=-1, strike=510, type=OptionType.CALL
+    )
+    nothing = MarginRequirements(cash_requirement=ZERO, margin_requirement=ZERO)
+    assert calculate_margin([long, short], underlying) == nothing
+    assert calculate_margin([long, short, short, long], underlying) == nothing
+    assert (
+        calculate_margin([short, long, long, short, long, short], underlying) == nothing
+    )
+
+
+def test_cancel_some_opposing_positions():
+    underlying = Underlying(price=500)
+    long = Option(
+        expiration=date.today(), price=10, quantity=1, strike=510, type=OptionType.CALL
+    )
+    short = Option(
+        expiration=date.today(), price=10, quantity=-2, strike=510, type=OptionType.CALL
+    )
+    assert calculate_margin([long, short], underlying) == calculate_margin(
+        [short.model_copy(update={"quantity": -1})], underlying
+    )