668 Part V: Index Options and Futures SPAN "margin" applies to futures contracts as well, although volatility consid­ erations don't mean anything in terms of evaluating the actual futures risk As a first example, consider how SPAN would evaluate the risk of a futures contract. Example: The S&P 500 futures will be used for this example. Suppose that the Chicago Mercantile Exchange determines that the required maintenance margin for the futures is $10,000, which represents a 20-point move by the futures (recall that S&P futures are worth $500 per point). Moreover, the exchange determines that an "extreme" move is 14 points, or $7,000 of risk Scenario Futures unchanged; volatility up Futures unchanged; volatility down Futures up one-third of range; volatility up Futures up one-third of range; volatility down Futures down one-third of range; volatility up Futures down one-third of range; volatility down Futures up two-thirds of range; volatility up Futures up two-thirds of range; volatility down Futures down two-thirds of range; volatility up Futures down two-thirds of range; volatility down Futures up three-thirds of range; volatility up Futures up three-thirds of range; volatility down Futures down three-thirds of range; volatility up Futures down three-thirds of range; volatility down Futures up "extreme" move Futures down "extreme" move Long 1 Future Potential Pit/Loss 0 0 + 3,330 + 3,330 - 3,330 - 3,330 + 6,670 + 6,670 - 6,670 - 6,670 + 10,000 + l 0,000 -10,000 - 10,000 + 7,000 - 7,000 The 16 array items are always displayed in this order. Note that since this array is for a futures contract, the "volatility up" and "volatility down" scenarios are always the same, since the volatility that is referred to is the one that is used as the input to an option pricing model. Notice that the actual price of the futures contract is not needed in order to generate the risk array. The SPAN requirement is always the largest potential loss from the array. Thus, if one were long one S&P 500 futures contract, his SPAN mar­ gin requirement would be $10,000, which occurs under the "futures down three­ thirds" scenarios. This will always be the maintenance margin for a futures contract.