Span margin: Difference between revisions
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Revision as of 20:45, 1 December 2019
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SPAN margin is a margin calculated by Standardized Portfolio Analysis of risk system. The system is used in futures and options exchanges in many countries. SPAN uses advanced algorithms that determine risk and based on this present margin requirements.
Chicago Mercantile Exchange formed system for calculating margin. “As excerpted directly from the CME Group web site: SPAN uses the risk arrays to scan underlying market price changes and volatility changes for all contracts in a portfolio, in order to determine value gains and losses at the portfolio level. This is the single most important calculation executed by the program.” Future, options and OTC (Over-The-Counter) markets were invented to insure the cash market. “Through the SPAN system, traders are rewarded for being aware of this. Although the CME invented the SPAN margin calculation system, various exchanges around the world have adopted it.” [1]
There are many margin calculators available in the internet that enable investors to calculate margin. This helps to make decisions faster as well as reduce risk of bad decisions.
The margin is an amount of money that investor gets for the risk he takes buying options or futures. It doesn't mean that investor won't loss he's money. SPAN margin is only a reward for taking the risk. Thanks to SPAN system investors know whether price is high enough to cover the risk.
Futures margin
“Futures margins are typically determined by the SPAN margining system, which takes into account all positions in a customer’s account and, in general, usually produces a lower margin requirement than the 20 percent standard margin methodology. Portfolio margining may bring equity margin rules more in line with futures margin requirements under various circumstances.” [2]
Options margin
“For options, the margin is essentially a bookkeeping entry and does not represent the actual use of money. As a result, interest can be earned in an account for the full amount; for example, if you have $100,000 in a brokerage account and you have a margin requirement of $60,000 from option sales, you still earn interest on the entire $100,000 plus the additional premium collected.” [3]
Portfolio margining
“In contrast, portfolio margining is a method for computing margin option positions based on the risk profile of the account, rather than on fixed percentages, for qualified customers. The portfolio margining method uses a risk-based scheme, instead of a strategy-based scheme, by using theoretical pricing models to calculate the loss of a position at different price points above and below the current stock or index price.” [4]
References
- Artzner P. (1999). Application of coherent risk measures to capital requirements in insurance North American Actuarial Journal, Vol. 3, Iss. 2
- Artzner, P., Delbaen, F., Eber, J. M., & Heath, D. (1999). Coherent measures of risk. Mathematical finance, 9(3), 203-228.
- Friedentag H. C. (2009). The Stock Option Income Generator: How to Make Steady Profits by Renting Your Stocks
- ↑ Drakoln N. (2009). Trade Like a Pro: 15 High-Profit Trading Strategies
- ↑ Mullaney M. D (2009). The Complete Guide to Option Strategies: Advanced and Basic Strategies on Stocks, ETFs, Indexes, and Stock Indexes
- ↑ Mullaney M. D (2009). The Complete Guide to Option Strategies: Advanced and Basic Strategies on Stocks, ETFs, Indexes, and Stock Indexes
- ↑ Mullaney M. D (2009). The Complete Guide to Option Strategies: Advanced and Basic Strategies on Stocks, ETFs, Indexes, and Stock Indexes
Author: Natalia Pęgiel
