670 Part V: Index Options and Futures 
While the exchange does not tell us how much of an increase or decrease it uses 
in terms of volatility, one can get something of a feel for the magnitude by looking at 
the first two lines of the table. The exchange is saying that if the futures are 
unchanged tomorrow, but volatility "increases," then the call will increase in value by 
$460 (92 cents); if it "decreases," however, the call will lose $610 (1.22 points) of 
value. These are large piice changes, so one can assume that the volatility assump­
tions are significant. 
The real ease of use of the SPAN iisk array is when it comes to evaluating the 
iisk of a more complicated position, or even a portfolio of options. All one needs to 
do is to combine the risk array factors for each option or future in the position in 
order to arrive at the total requirement. 
Example: Using the above two examples, one can see what the SPAN requirements 
would be for a covered wiite: long the S&P future and short the Dec 410 call. 
Short 1 
Long Dec 410 call 
1 S&P Potential Covered 
Scenario Future Pft/Loss Write 
Futures unchanged; vol. up 0 460 - 460 
Futures unchanged; vol. down 0 + 610 + 610 
Futures up 1 /3 of range; vol. up + 3,330 - 2,640 + 690 
Futures up 1 /3 of range; vol. down + 3,330 - 1,730 + 1,600 
Futures down 1 /3 of range; vol. up - 3,330 + 1,270 -2,060 
Futures down 1 /3 of range; vol. down 3,330 + 2,340 - 990 
Futures up 2/3 of range; vol. up + 6,670 - 5,210 + 1,460 
Futures up 2/3 of range; vol. down + 6,670 - 4,540 +2, 130 
Futures down 2/3 of range; vol. up 6,670 + 2,540 -4, 130 
Futures down 2/3 of range; vol. down - 6,670 + 3,430 -3,240 
Futures up 3/3 of range; vol. up + 10,000 - 8,060 + 1,940 
Futures up 3/3 of range; vol. down + 10,000 - 7,640 +2,360 
Futures down 3/3 of range; vol. up -10,000 + 3,380 -6,620 
Futures down 3/3 of range; vol. down -10,000 + 3,990 -6,010 
Futures up ,, extreme" move + 7,000 - 3,130 +3\870 
Futures down "extreme" move - 7,000 + 1,500 -5,500 
As might be expected, the worst-case projection for a covered wiite is for the 
stock to drop, but for the implied volatility to increase. The SPAN system projects 
that this covered wiiter would lose $6,620 if that happened. Thus, "futures down 3/3 
of range; volatility up" is the SPAN requirement, $6,620.