Discussion in 'Options' started by rickty, Mar 10, 2002.

  1. rickty


    Margin requirements on options on futures is determined by SPAN.
    PC-SPAN is available for purchase for $500. I'm interested to
    know whether SPAN is freely available somewhere on the web?
    If not, what do most people do to assess margin requirements?
    Also, what do people do about strategy historical backtesting
    which includes margin requirements?

    Any information will be much appreciated.

  2. SPAN (Standard Portfolio Analysis of Risk) is used by the exchanges to compute clearing member overall portfolio margin and is typically used by clearing members and brokers to compute individual account margin (although many brokers have their own non-SPAN margining systems). It's typically not used by an individual trader although some traders/firms that have large portfolios also use it internally for their own uses.

    You can download the SPAN arrays for various exchanges but they change and there's a different set of arrays generated each day by each exchange for each commodity - so using it historically might present a challenge.

    Typically, SPAN becomes a factor only if you have combination positions (e.g., intra/intercommodity spreads, future/option combos, option spreads, etc.) where there is actual portfolio-based (rather then merely position-based) risk. Otherwise, if for example you were just trading straight S&P contracts or I believe even straight options, the margin rules are fairly basic and can be calculated without SPAN.

    If you're backtesting spreads/combos, you might check your particular broker - they may have simple predefined margin rules that would be used in place of what SPAN computed anyway.

    What impact do you perceive margin calculations having on the backtesting of your trading strategies?
  3. rickty


    Thanks for your input.
    I'm looking into a strategy that involves mechanically puting
    on a OTM put credit spread on the SP500 futures at the beginning
    of each quarterly cycle for a maximum hold of 3 months. In order
    to see what type of return I would have gotten with this strategy
    I need to know what the worst case margin requirements were.
    Are you aware of how margin requirements can be calculated
    easily for this strategy?

    In this strategy the higher strike put is established at 15% below
    the current SP futures price when the spread is first put on.
    From historical data we see that the strategy has a 90% chance
    of working without any need for adjustment.
    However, if the price falls to 10% of the initial
    price during the holding period the spread is bought back and
    rolled forward with twice the number of put positions. To be able
    to do this, one would need to have sufficient margin. I would like
    to know what sort of margin is required and specifically how well
    this strategy performed in the bearish 2000/2001 period.

    Any help here would be appreciated.